UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-32921

NexPoint Diversified Real Estate Trust

(Exact Name of Registrant as Specified in Its Charter)


Delaware			80-0139099
(State or other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)


300 Crescent Court, Suite 700, Dallas, Texas (Address of Principal Executive Offices)			75201 (Zip Code)

(214) 276-6300

(Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, par value $0.001 per share

NXDT

New York Stock Exchange

5.50% Series A Cumulative Preferred Shares, par value
$0.001 per share ($25.00 liquidation preference per share)

NXDT-PA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~August~~November 14, 2023, the registrant had ~~37,186,395.75~~37,813,729.99 common shares, par value $0.001 per share, outstanding.

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST

Form 10-Q

Quarter Ended ~~June~~September 30, 2023

INDEX


		Page
Cautionary Statement Regarding Forward Looking Statements		ii

	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets as of ~~June~~September 30, 2023 (Unaudited) and December 31, 2022	1
	Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three ~~and Six~~ Months Ended ~~June~~September 30, 2023 and September 30, 2022 and Nine Months Ended September 30, 2023	3
	Consolidated Unaudited ~~Statements~~Statement of Operations for the ~~Three and~~ Six Months Ended June 30, 2022 (Predecessor Basis)	45
	Consolidated Unaudited Statements of Shareholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023	6
	Consolidated Unaudited ~~Statements~~Statement of Changes in Net Assets for the ~~Three and~~ Six Months Ended June 30, 2022 (Predecessor Basis)	8
	Consolidated Unaudited Statement of Shareholders’ Equity for the Three Months Ended September 30, 2022	9
	Consolidated Unaudited Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June~~September 30, 2022 and the Nine Months Ended September 30, 2023	910
	Consolidated Unaudited Statement of Cash Flows for the Six Months Ended June 30, 2022 (Predecessor Basis)	1112
	Notes to Consolidated Unaudited Financial Statements	1314
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3936
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5754
Item 4.	Controls and Procedures	5755

	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	5956
Item 1A.	Risk Factors	5956
Item 2.	Unregistered Sale of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	5956
Item 3.	Defaults Upon Senior Securities	5956
Item 4.	Mine Safety Disclosures	5956
Item 5.	Other Information	5956
Item 6.	Exhibits	5957
Signatures		6158

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Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, our performance and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this quarterly report are based on management’s current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “estimate,” “project,” “should,” “will,” “would,” “result,” "could," "future," "continue," "if," the negative version of these words and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

•Unfavorable changes in economic conditions and their effects on the real estate industry generally and our operations and financial condition, including inflation, rising interest rates, tightening monetary policy or recession, which may limit our ability to access funding and generate returns for shareholders;

•Our loans and investments expose us to risks similar to and associated with real estate investments generally;

•Commercial real estate-related investments that are secured, directly or indirectly, by real property are subject to delinquency, foreclosure and loss, which could result in losses to us;

•Risks associated with the ownership of real estate, including dependence on tenants and compliance with laws and regulations related to ownership of real property;

•Risks associated with our investment in diverse issuers, industries and investment forms and classes, both in real estate and in non-real estate sectors, including common equity, preferred equity securities, options or other derivatives, short sale contracts, secured loans of securities, reverse repurchase agreements, structured finance securities, below investment grade senior loans, bonds, convertible instruments, joint ventures, and emerging markets;

•Fluctuations in interest rate and credit spreads, could reduce our ability to generate income on our loans and other investments, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments;

•The use of leverage to finance our investments;

•Risks associated with our loans and investments in debt instruments including, senior loans, mezzanine loans, collateralized loan obligations ("CLOs"), and structured finance securities;

•Our loans and investments are concentrated in terms of type of interest, geography, asset types, industry and sponsors and may continue to be so in the future;

•We have a substantial amount of indebtedness which may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs;

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•We have limited operating history as a standalone company and may not be able to operate our business successfully, find suitable investments, or generate sufficient revenue to make or sustain distributions to our shareholders;

•We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of NexPoint Advisors, L.P. (“NexPoint” or our “Sponsor”), members of the NexPoint Real Estate Advisors X, L.P. (our “Adviser”) management team or their affiliates.

•We are dependent upon our Adviser and its affiliates to conduct our day-to-day operations; thus, adverse changes in their financial health or our relationship with them could cause our operations to suffer;

•Our Adviser and its affiliates face conflicts of interest, including significant conflicts created by our Adviser’s compensation arrangements with us, including compensation which may be required to be paid to our Adviser if our advisory agreement is terminated, which could result in decisions that are not in the best interests of our shareholders;

•We pay substantial fees and expenses to our Adviser and its affiliates, which payments increase the risk that you will not earn a profit on your investment;

•If we fail to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes, cash available for distributions to be paid to our shareholders could decrease materially, which would limit our ability to make distributions to our shareholders; and

•Any other risks included under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

iii

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value amounts)


		June 30, 2023 (Unaudited)		December 31, 2022			September 30, 2023 (Unaudited)		December 31, 2022

ASSETS	ASSETS					ASSETS
Consolidated Real Estate Investments	Consolidated Real Estate Investments					Consolidated Real Estate Investments
Land	Land	$	47,708	$	47,708	Land	$	47,708	$	47,708
Buildings and improvements	Buildings and improvements	181,886		174,469		Buildings and improvements	198,190		174,469
Intangible lease assets	Intangible lease assets	10,979		10,979		Intangible lease assets	10,979		10,979
Construction in progress	Construction in progress	39,654		39,731		Construction in progress	24,928		39,731
Furniture, fixtures, and equipment	Furniture, fixtures, and equipment	362		354		Furniture, fixtures, and equipment	362		354
Total Gross Consolidated Real Estate Investments	Total Gross Consolidated Real Estate Investments	280,589		273,241		Total Gross Consolidated Real Estate Investments	282,167		273,241
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(14,023)		(7,158)		Accumulated depreciation and amortization	(17,673)		(7,158)
Total Net Consolidated Real Estate Investments	Total Net Consolidated Real Estate Investments	266,566		266,083		Total Net Consolidated Real Estate Investments	264,494		266,083
Investments, at fair value ($552,667 and $576,419 with related parties, respectively)		712,657		754,910
Equity method investments ($7,306 and $7,272 with related parties, respectively)		69,590		70,656
Investments, at fair value ($540,161 and $576,419 with related parties, respectively)						Investments, at fair value ($540,161 and $576,419 with related parties, respectively)	714,186		754,910
Equity method investments ($7,200 and $7,272 with related parties, respectively)						Equity method investments ($7,200 and $7,272 with related parties, respectively)	67,585		70,656
Life insurance policies, at fair value	Life insurance policies, at fair value	60,619		67,711		Life insurance policies, at fair value	—		67,711
Cash and cash equivalents	Cash and cash equivalents	10,590		13,360		Cash and cash equivalents	3,713		13,360
Restricted cash	Restricted cash	34,201		35,289		Restricted cash	34,121		35,289
Accounts receivable, net	Accounts receivable, net	1,698		1,903		Accounts receivable, net	1,853		1,903
Prepaid and other assets	Prepaid and other assets	7,507		6,441		Prepaid and other assets	9,726		6,441
Accrued interest and dividends	Accrued interest and dividends	8,131		4,302		Accrued interest and dividends	4,706		4,302
Deferred tax asset, net	Deferred tax asset, net	1,983		2,247		Deferred tax asset, net	651		2,247
TOTAL ASSETS	TOTAL ASSETS	$	1,173,542	$	1,222,902	TOTAL ASSETS	$	1,101,035	$	1,222,902

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Mortgages payable, net	Mortgages payable, net	$	143,421	$	144,414	Mortgages payable, net	$	142,561	$	144,414
Notes payable, net ($20,000 and $0 with related party, respectively)	Notes payable, net ($20,000 and $0 with related party, respectively)	37,902		24,250		Notes payable, net ($20,000 and $0 with related party, respectively)	35,000		24,250
Prime brokerage borrowing	Prime brokerage borrowing	2,118		2,624		Prime brokerage borrowing	1,760		2,624
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	8,483		13,865		Accounts payable and other accrued liabilities	9,207		13,865
Income tax payable	Income tax payable	—		10,720		Income tax payable	—		10,720
Accrued real estate taxes payable	Accrued real estate taxes payable	2,262		254		Accrued real estate taxes payable	3,389		254
Accrued interest payable	Accrued interest payable	1,286		1,115		Accrued interest payable	1,206		1,115
Security deposit liability	Security deposit liability	414		416		Security deposit liability	414		416
Prepaid rents	Prepaid rents	931		1,273		Prepaid rents	843		1,273
Intangible lease liabilities, net	Intangible lease liabilities, net	5,284		6,027		Intangible lease liabilities, net	4,913		6,027
Due to affiliates	Due to affiliates	112		112		Due to affiliates	112		112
Total Liabilities	Total Liabilities	$	202,213	$	205,070	Total Liabilities	$	199,405	$	205,070

Shareholders' Equity:	Shareholders' Equity:					Shareholders' Equity:

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Preferred shares, $0.001 par value: 4,800,000 shares authorized; 3,359,593 shares issued and outstanding	Preferred shares, $0.001 par value: 4,800,000 shares authorized; 3,359,593 shares issued and outstanding	3		3		Preferred shares, $0.001 par value: 4,800,000 shares authorized; 3,359,593 shares issued and outstanding	3		3
Common shares, $0.001 par value: unlimited shares authorized; 37,171,807 shares issued and outstanding		37		37
Common shares, $0.001 par value: unlimited shares authorized; 37,682,699 and 37,171,807 shares issued and outstanding, respectively						Common shares, $0.001 par value: unlimited shares authorized; 37,682,699 and 37,171,807 shares issued and outstanding, respectively	38		37
Additional paid-in capital	Additional paid-in capital	1,000,281		999,845		Additional paid-in capital	1,005,364		999,845
Accumulated earnings (loss)	Accumulated earnings (loss)	(28,992)		17,947		Accumulated earnings (loss)	(103,775)		17,947
Total Shareholders' Equity	Total Shareholders' Equity	971,329		1,017,832		Total Shareholders' Equity	901,630		1,017,832
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,173,542	$	1,222,902	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,101,035	$	1,222,902

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)


		For the Three Months Ended June 30,		For the Six Months Ended June 30,			For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2023			2023		2022		2023
Revenues	Revenues					Revenues
Rental income	Rental income	$	5,417	$	10,137	Rental income	$	5,404	$	4,603	$	15,541
Interest income ($692 and $1,317 with related parties, respectively)		1,751		3,769
Dividend income ($6,438 and $12,864 with related parties, respectively)		6,690		14,809
Interest income ($573, $1,472 and $1,890 with related parties, respectively)						Interest income ($573, $1,472 and $1,890 with related parties, respectively)	1,863		1,836		5,632
Dividend income ($4,853, $6,371 and $17,717 with related parties, respectively)						Dividend income ($4,853, $6,371 and $17,717 with related parties, respectively)	5,000		34,306		19,809
Other income	Other income	22		31		Other income	97		18		128
Total revenues	Total revenues	13,880		28,746		Total revenues	12,364		40,763		41,110
Expenses	Expenses					Expenses
Property operating expenses	Property operating expenses	2,520		4,026		Property operating expenses	1,527		1,756		5,553
Property management fees	Property management fees	191		362		Property management fees	191		166		553
Real estate taxes and insurance	Real estate taxes and insurance	1,340		2,697		Real estate taxes and insurance	1,360		1,502		4,057
Advisory and administrative fees	Advisory and administrative fees	1,660		5,238		Advisory and administrative fees	3,469		2,939		8,707
Property general and administrative expenses	Property general and administrative expenses	1,025		1,768		Property general and administrative expenses	833		858		2,601
Corporate general and administrative expenses	Corporate general and administrative expenses	2,252		3,748		Corporate general and administrative expenses	1,685		1,938		5,433
Conversion expenses	Conversion expenses	1,281		1,444		Conversion expenses	—		—		1,444
Depreciation and amortization	Depreciation and amortization	3,584		7,108		Depreciation and amortization	3,820		3,561		10,928
Total expenses	Total expenses	13,853		26,391		Total expenses	12,885		12,720		39,276
Operating income		27		2,355
Operating income (loss)						Operating income (loss)	(521)		28,043		1,834
Interest expense	Interest expense	(3,762)		(7,224)		Interest expense	(4,173)		(2,541)		(11,397)
Equity in income (losses) of unconsolidated equity method ventures ($209 and $421 with related parties, respectively)		422		346
Change in unrealized gains (losses) ($(1,303) and $(17,311) with related parties, respectively)		(9,332)		(27,972)
Equity in income (losses) of unconsolidated equity method ventures ($286, $(1,155) and $498 with related parties, respectively)						Equity in income (losses) of unconsolidated equity method ventures ($286, $(1,155) and $498 with related parties, respectively)	(369)		(1,581)		(23)
Change in unrealized gains (losses) ($(82,240), $(43,785) and $(98,248) with related parties, respectively)						Change in unrealized gains (losses) ($(82,240), $(43,785) and $(98,248) with related parties, respectively)	(61,626)		(78,238)		(89,598)
Realized gains (losses)	Realized gains (losses)	(914)		221		Realized gains (losses)	(939)		2,846		(718)
Net loss before income taxes		(13,559)		(32,274)

Net income (loss) before income taxes						Net income (loss) before income taxes	(67,628)		(51,471)		(99,902)
Income tax expense	Income tax expense	(308)		(1,114)		Income tax expense	(330)		(7,516)		(1,444)
Net loss		(13,867)		(33,388)
Net loss attributable to preferred shareholders		(1,155)		(2,310)
Net loss attributable to common shareholders		$	(15,022)	$	(35,698)
Net income (loss)						Net income (loss)	(67,958)		(58,987)		(101,346)
Net (income) loss attributable to preferred shareholders						Net (income) loss attributable to preferred shareholders	(1,155)		(1,155)		(3,465)
Net income (loss) attributable to common shareholders						Net income (loss) attributable to common shareholders	$	(69,113)	$	(60,142)	$	(104,811)

Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	37,172		37,172		Weighted average common shares outstanding - basic	37,187		37,172		37,177
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	37,172		37,172		Weighted average common shares outstanding - diluted	37,187		37,172		37,177

Loss per share - basic		$	(0.40)	$	(0.96)
Loss per share - diluted		$	(0.40)	$	(0.96)

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Earnings (loss) per share - basic	$	(1.86)	$	(1.62)	$	(2.82)
Earnings (loss) per share - diluted	$	(1.86)	$	(1.62)	$	(2.82)

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF OPERATIONS (Predecessor Basis)

(in thousands)

(Unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
2022 2022
Investment income:
Income:
Dividends from unaffiliated issuers $ 52,647 $ 60,178
Dividends from affiliated issuers 8,778 15,025
Interest from unaffiliated issuers 196 991
Interest from affiliated issuers 2,859 3,002
Total income 64,480 79,196
Expenses:
Investment advisory 3,224 6,279
Income tax expense 2,000 2,000
Legal fees 463 987
Interest expense and commitment fees 373 696
Conversion expense 108 471
Accounting services fees 171 334
Insurance 139 185
Reports to shareholders 68 136
Trustees fees 41 109
Audit and tax preparation fees 39 77
Transfer agent fees 42 72
Pricing fees 42 68
Registration fees 29 56
Other 130 322
Total operating expenses 6,869 11,792
Net investment income 57,611 67,404
Preferred dividend expenses (1,155) (2,310)
Net realized and unrealized gain (loss) on investments
Realized gain on:
Investments from unaffiliated issuers 1,302 28,893
Securities sold short 253 253
Net change in unrealized gain on:
Investments from unaffiliated issuers (29,064) (43,752)
Investments from affiliated issuers 39,764 76,346
Securities sold short (153) —

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Net realized and unrealized gain on investments 12,102 61,740
Total increase in net assets resulting from operations $ 68,557 $ 126,834


	For the Six Months Ended June 30,
	2022
Investment income:
Income:
Dividends from unaffiliated issuers	$	60,178
Dividends from affiliated issuers	15,025
Interest from unaffiliated issuers	991
Interest from affiliated issuers	3,002
Total income	79,196

Expenses:
Investment advisory	6,279
Income tax expense	2,000
Legal fees	987
Interest expense and commitment fees	696
Conversion expense	471
Accounting services fees	334
Insurance	185
Reports to shareholders	136
Trustees fees	109
Audit and tax preparation fees	77
Transfer agent fees	72
Pricing fees	68
Registration fees	56
Other	322
Total operating expenses	11,792
Net investment income	67,404
Preferred dividend expenses	(2,310)

Net realized and unrealized gain (loss) on investments
Realized gain on:
Investments from unaffiliated issuers	28,893

Securities sold short	253

Net change in unrealized gain on:
Investments from unaffiliated issuers	(43,752)
Investments from affiliated issuers	76,346

Net realized and unrealized gain on investments	61,740
Total increase in net assets resulting from operations	$	126,834

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

(Unaudited)


		Preferred Shares			Common Shares			Additional Paid-in Capital				Accumulated Earnings (Loss)				Total					Preferred Shares			Common Shares			Additional Paid-in Capital		Accumulated Earnings (Loss)		Total
Three Months Ended June 30, 2023		Number of Shares	Amount		Number of Shares	Amount
Balances, March 31, 2023		3,359,593	$	3	37,171,807	$	37			$	999,845			$	(8,304)				$	991,581
Three Months Ended September 30, 2023																		Three Months Ended September 30, 2023			Number of Shares	Amount		Number of Shares	Amount		Additional Paid-in Capital		Accumulated Earnings (Loss)		Total
Balances, June 30, 2023																		Balances, June 30, 2023			3,359,593	$	3	37,171,807	$	37

Vesting of stock-based compensation		—	—		—	—		436				—				436
Stock-based compensation expense																		Stock-based compensation expense			—	—		—	—		477		—		477
Shares issued to Advisor for admin and advisory fees																		Shares issued to Advisor for admin and advisory fees			—	—		14,589	—		156		—		156
Net loss attributable to common shareholders	Net loss attributable to common shareholders	—	—		—	—		—				(15,022)				(15,022)		Net loss attributable to common shareholders			—	—		—	—		—		(69,113)		(69,113)
Net loss attributable to preferred shareholders		—	—		—	—		—				1,155				1,155
Net income attributable to preferred shareholders																		Net income attributable to preferred shareholders			—	—		—	—		—		1,155		1,155
Common share dividends declared ($0.15 per share)	Common share dividends declared ($0.15 per share)	—	—		—	—		—				(5,666)				(5,666)		Common share dividends declared ($0.15 per share)			—	—		496,303	1		4,450		(5,670)		(1,219)
Preferred share dividends declared ($0.34375 per share)	Preferred share dividends declared ($0.34375 per share)	—	—		—	—		—				(1,155)				(1,155)		Preferred share dividends declared ($0.34375 per share)			—	—		—	—		—		(1,155)		(1,155)
Balances, June 30, 2023		3,359,593	$	3	37,171,807	$	37	$	1,000,281			$	(28,992)			$	971,329
Balances, September 30, 2023																		Balances, September 30, 2023			3,359,593	$	3	37,682,699	$	38	$	1,005,364	$	(103,775)	$	901,630

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Preferred Shares Common Shares Additional
Paid-in
Capital Accumulated
Earnings (Loss) Total
Six Months Ended June 30, 2023 Number of
Shares Amount Number of
Shares Amount
Balances, December 31, 2022 3,359,593 $ 3 37,171,807 $ 37 $ 999,845 $ 17,947 $ 1,017,832
Vesting of stock-based compensation — — — — 436 — 436
Net loss attributable to common shareholders — — — — — (35,698) (35,698)
Net loss attributable to preferred shareholders — — — — — 2,310 2,310
Common share dividends declared ($0.30 per share) — — — — — (11,241) (11,241)
Preferred share dividends declared ($0.68750 per share) — — — — — (2,310) (2,310)
Balances, June 30, 2023 3,359,593 $ 3 37,171,807 $ 37 $ 1,000,281 $ (28,992) $ 971,329


	Preferred Shares			Common Shares			Additional Paid-in Capital		Accumulated Earnings (Loss)		Total
Nine Months Ended September 30, 2023	Number of Shares	Amount		Number of Shares	Amount
Balances, December 31, 2022	3,359,593	$	3	37,171,807	$	37	$	999,845	$	17,947	$	1,017,832

Stock-based compensation expense	—	—		—	—		913		—		913
Shares issued to Advisor for admin and advisory fees	—	—		14,589	—		156		—		156
Net loss attributable to common shareholders	—	—		—	—		—		(104,811)		(104,811)
Net income attributable to preferred shareholders	—	—		—	—		—		3,465		3,465
Common share dividends declared ($0.45 per share)	—	—		496,303	1		4,450		(16,911)		(12,460)
Preferred share dividends declared ($1.03125 per share)	—	—		—	—		—		(3,465)		(3,465)
Balances, September 30, 2023	3,359,593	$	3	37,682,699	$	38	$	1,005,364	$	(103,775)	$	901,630

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CHANGES IN NET ASSETS (Predecessor Basis)

(in thousands, except share amounts)

(Unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
2022 2022
Increase (decrease) in net assets operations:
Net investment income $ 57,611 $ 67,404
Preferred dividend expenses (1,155) (2,310)
Accumulated net realized gain (loss) on investments, securities sold short, written options, futures contracts, and foreign currency transactions 1,555 29,146
Net change in unrealized appreciation on investments, securities sold short, written options contracts and translation of assets and liabilities denominated in foreign currency 10,546 32,594
Net increase from operations 68,557 126,834
Distributions declared to common shareholders:
Distribution (5,573) (11,139)
Total distributions declared to common shareholders: (5,573) (11,139)
Increase in net assets from operations and distributions 62,984 115,695
Share transactions:
Value of distributions reinvested 741 1,425
Proceeds from sale of shares — 1,288
Net increase from shares transactions 741 2,713
Total increase in net assets 63,725 118,408
Net assets
Beginning of period 965,891 911,208
End of period $ 1,029,616 $ 1,029,616
Change in Common Shares
Issued for distribution reinvested 46 92
Net increase in common shares 46 92


	For the Six Months Ended June 30,
	2022
Increase (decrease) in net assets operations:
Net investment income	$	67,404
Preferred dividend expenses	(2,310)
Accumulated net realized gain (loss) on investments, securities sold short, written options, futures contracts, and foreign currency transactions	29,146
Net change in unrealized appreciation on investments, securities sold short, written options contracts and translation of assets and liabilities denominated in foreign currency	32,594
Net increase from operations	126,834

Distributions declared to common shareholders:
Distribution	(11,139)
Total distributions declared to common shareholders:	(11,139)
Increase in net assets from operations and distributions	115,695

Share transactions:
Value of distributions reinvested	1,425
Proceeds from sale of shares	1,288
Net increase from shares transactions	2,713
Total increase in net assets	118,408

Net assets
Beginning of period	911,208
End of period	$	1,029,616

Change in Common Shares
Issued for distribution reinvested	92
Net increase in common shares	92

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

(Unaudited)


	Preferred Shares			Common Shares			Additional Paid-in Capital		Accumulated Earnings (Loss)		Total
Three Months Ended September 30, 2022	Number of Shares	Amount		Number of Shares	Amount
Balances, June 30, 2022	3,359,593	$	3	37,171,807	$	37	$	998,557	$	114,271	$	1,112,868
Costs associated with Business Change	—	—		—	—		(92)		—		(92)
Net loss attributable to common shareholders	—	—		—	—		—		(60,142)		(60,142)
Net income attributable to preferred shareholders	—	—		—	—		—		1,155		1,155
Common stock dividends declared ($0.15 per share)	—	—		—	—		—		(5,577)		(5,577)
Preferred stock dividends declared ($0.34375 per share)	—	—		—	—		—		(1,155)		(1,155)
Balances, September 30, 2022	3,359,593	$	3	37,171,807	$	37	$	998,465	$	48,552	$	1,047,057

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	~~For the Six Months Ended June 30,~~
	~~2023~~
~~Cash flows from operating activities~~
~~Net loss~~	$	~~(33,388)~~
~~Adjustments to reconcile net loss to net cash used in operating activities:~~
~~Depreciation and amortization~~	~~7,108~~
~~Amortization of intangible lease assets and liabilities~~	~~(581)~~
~~Amortization of deferred financing costs~~	~~244~~
~~Paid-in-kind interest~~	~~(1,961)~~
~~Realized (gain) loss~~	~~(221)~~
~~Net change in unrealized (gain) loss on investments held at fair value ($17,311 with related parties)~~	~~27,972~~
~~Equity in income (losses) of unconsolidated ventures ($421 with related parties)~~	~~(346)~~
~~Distributions of earnings from unconsolidated ventures ($386 with related parties)~~	~~1,412~~

~~Vesting of stock-based compensation~~	~~436~~
~~Cash paid for life settlement premiums~~	~~(2,532)~~
~~Changes in operating assets and liabilities, net of effects of acquisitions:~~
~~Deferred tax asset~~	~~264~~
~~Income tax payable~~	~~(10,720)~~
~~Real estate taxes payable~~	~~2,008~~
~~Operating assets~~	~~(5,064)~~
~~Operating liabilities~~	~~(5,480)~~
~~Net cash used in operating activities:~~	~~(20,849)~~
~~Cash flows from investing activities~~



~~Proceeds from sale of investments~~	~~25,084~~
~~Purchases of investments~~	~~(2,102)~~

~~Additions to consolidated real estate investments~~	~~(7,348)~~


~~Proceeds from life settlement policy maturities~~	~~2,999~~
~~Net cash provided by investing activities~~	~~18,633~~

~~Cash flows from financing activities~~
~~Proceeds received from notes payable~~	~~20,000~~
~~Mortgage payments~~	~~(1,182)~~
~~Prime brokerage borrowing~~	~~9,922~~
~~Credit facilities payments~~	~~(6,000)~~
~~Prime brokerage payments~~	~~(10,428)~~
~~Deferred financing costs paid~~	~~(403)~~
~~Dividends paid to preferred shareholders~~	~~(2,310)~~
~~Dividends paid to common shareholders~~	~~(11,241)~~
~~Net cash used in financing activities:~~	~~(1,642)~~

~~Net decrease in cash, cash equivalents and restricted cash~~	~~(3,858)~~


	For the Nine Months Ended September 30,		For the Three Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(101,346)	$	(58,987)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10,928		3,643
Amortization of intangible lease assets and liabilities	(912)		(371)
Amortization of deferred financing costs	441		(25)
Paid-in-kind interest	(3,444)		(1,016)
Realized (gain) loss	718		(2,846)
Net change in unrealized (gain) loss on investments held at fair value ($98,248 and $(43,785) with related parties, respectively)	89,598		78,238

Equity in income (losses) of unconsolidated ventures ($498 and $(1,155) with related parties, respectively)	23		1,581
Distributions of earnings from unconsolidated ventures ($570 and $110 with related parties, respectively)	3,048		1,692
Stock-based compensation expense	913		—
Cash paid for life settlement premiums	(3,355)		(3,022)
Changes in operating assets and liabilities, net of effects of acquisitions:
Deferred tax asset	1,596		—
Income tax payable	(10,720)		—
Real estate taxes payable	3,135		—
Operating assets	(4,210)		(3,795)
Operating liabilities	(4,887)		9,459
Net cash provided by (used in) operating activities:	(18,474)		24,551

Cash flows from investing activities
Proceeds from asset redemptions	—		10,872
Distributions from CLO investments	—		18,100
Proceeds from sale of investments	29,490		—
Purchases of investments ($4,034 and $(9,925) with related parties, respectively)	(3,579)		(9,925)
Contributions to equity method investments	—		(1,382)
Additions to consolidated real estate investments	(8,926)		(1,317)
Acquisitions of consolidated real estate investments	—		(26,500)

Proceeds from life settlement policy maturities	2,999		—
Cash from deconsolidation of investment	(3,993)		—
Net cash provided by (used in) investing activities	15,991		(10,152)

Cash flows from financing activities
Proceeds received from notes payable	20,000		13,250

910

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~~Cash, cash equivalents and restricted cash, beginning of period (Note 3)~~	$	~~48,649~~
~~Cash, cash equivalents and restricted cash, end of period~~	$	~~44,791~~

~~Supplemental Disclosure of Cash Flow Information~~
~~Interest paid~~	$	~~7,053~~
~~Income tax paid~~	$	~~13,700~~
~~Supplemental Disclosure of Noncash Activities~~
~~Change in capitalized construction costs included in accounts payable and other accrued liabilities~~	$	—


Mortgage payments	(1,773)		(591)
Prime brokerage borrowing	11,892		2,567
Credit facilities payments	(8,999)		(9,500)
Prime brokerage payments	(12,756)		(92)
Deferred financing costs paid	(771)		(379)
Dividends paid to preferred shareholders	(3,465)		(1,155)
Dividends paid to common shareholders	(12,460)		(5,577)
Net cash used in financing activities:	(8,332)		(1,477)

Net decrease in cash, cash equivalents and restricted cash	(10,815)		12,922
Cash, cash equivalents and restricted cash, beginning of period	48,649		50,776
Cash, cash equivalents and restricted cash, end of period	$	37,834	$	63,698

Supplemental Disclosure of Cash Flow Information
Interest paid	$	11,306	$	2,722
Income tax paid	$	13,700	$	—
Supplemental Disclosure of Noncash Activities
Non-cash dividend payment	$	4,462	$	—
Fair value assets acquired from the sale of consolidated investments*	$	68,500	$	—
Non-cash advisory fee payment	$	156	$	—

*For more information about this transaction, refer to Note 10. Life Settlement Portfolio

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)

(in thousands)

(Unaudited)


	For the Six Months Ended June 30,
	2022
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	126,834

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Purchases of investment securities from unaffiliated issuers	(350,369)
Purchases of investment securities from affiliated issuers	(105,674)
Proceeds from the disposition of investment securities from unaffiliated issuers	428,007
Proceeds from the disposition of investment securities from affiliated issuers	2,135
Purchases of securities sold short	(177)
Amortization (accretion) of premiums	(171)
Net realized (gain) loss on investments from unaffiliated issuers	(28,893)

Net realized (gain) loss on securities sold short	(253)
Net change in unrealized depreciation on unaffiliated investments	43,752
Net change in unrealized appreciation on investments in affiliated investments	(76,346)
Changes in operating assets and liabilities
Dividends and interest receivable	741
Due from custodian	192
Prepaid expenses and other assets	(1,583)
Reclaim receivable	1,250
Foreign tax reclaim receivable	(1,274)
Due to broker	(1,695)
Payable for administrative fees	(11)
Payable for investment advisory fees	49
Due to custodian	(110)
Payable for interest expense and commitment fees	82
Accrued expenses and other liabilities	(150)
Net cash provided by operating activities	36,336

Cash flows from financing activities:
Payments on notes payable	(26,500)
Distributions paid in cash	(9,714)
Proceeds from shares sold	1,288
Proceeds from dividend reinvestment	(44)
Net cash used in financing activities	(34,970)
Net increase in cash	1,366

Cash, cash equivalents and restricted cash:
Beginning of period	2,678

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End of period	$	4,044

Supplemental disclosure of cash flow information
Reinvestment of distributions	$	1,425
Cash paid during the period for interest expense and commitment fees	$	614

See Notes to Consolidated Financial Statements

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NexPoint Diversified Real Estate Trust (the "Company", "we", "us", or "our") was formed in Delaware and has elected to be taxed as a real estate investment trust (a “REIT”). Substantially all of the Company’s business is conducted through NexPoint Diversified Real Estate Trust Operating Partnership, L.P. (the "OP"), the Company’s operating partnership. The Company conducts its business (the "Portfolio") through the OP and its wholly owned taxable REIT subsidiaries ("TRSs"). The Company's wholly owned subsidiary, NexPoint Diversified Real Estate Trust OP GP, LLC (the "OP GP"), is the sole general partner of the OP. As of ~~June~~September 30, 2023, there were 2,000 partnership units of the OP (the “OP Units”) outstanding, of which 100.0% were owned by the Company.

On July 1, 2022 (the “Deregistration Date”), the Securities and Exchange Commission (the “SEC”) issued an order pursuant to Section 8(f) of the Investment Company Act of 1940 (the “Investment Company Act”) declaring that the Company has ceased to be an investment company under the Investment Company Act (the “Deregistration Order”). The issuance of the Deregistration Order enabled the Company to proceed with full implementation of its new business mandate to operate as a diversified REIT that focuses primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to equity, mortgage debt, mezzanine debt and preferred equity (the “Business Change”).

The Company is externally managed by NexPoint Real Estate Advisors X, L.P. (the “Adviser”), through an agreement dated July 1, 2022, amended on October 25, 2022 and April 11, 2023, (the “Advisory Agreement”), by and among the Company and the Adviser for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated. The Adviser manages the day-to-day operations of the Company and provides investment management services. The Company had no employees as of ~~June~~September 30, 2023. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and our board of trustees (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor” or “NexPoint”).

2. Summary of Significant Accounting Policies

Readers of this Quarterly Report on Form 10-Q ("Quarterly Report") should refer to the audited financial statements and notes to consolidated financial statements of the Company for the year ended December 31, 2022, which are included in our 2022 Annual Report on Form 10-K ("("2022 Annual ~~Report~~"Report"), filed with the United States Securities and Exchange Commission (SEC) and also available on our website (nxdt.nexpoint.com), since we have omitted from this Quarterly Report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to Note 2, Summary of Significant Accounting Policies, in the notes to consolidated financial statements in our 2022 Annual Report for further discussion of our significant accounting policies and estimates. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this Quarterly Report or any other report or documents we file or furnish with the SEC.

~~Considerations Related to Tightening Monetary Policy~~

The macroeconomic environment remains challenging as central banks have continued to rapidly raise interest rates. The rising rate environment, coupled with large bank failures in early 2023 and ongoing economic uncertainty, has limited credit availability to commercial real estate. Less available and more expensive debt capital has had pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital.

~~Table of Contents~~

~~Financial Statement Preparation~~

The accompanying consolidated financial statements have been prepared in accordance with the rules applicable to quarterly reports on Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (U.S.), or General Accepted Accounting Principles (GAAP), for annual financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions about future events, such as weakening global macroeconomic conditions and stress in the banking system, including less available and more expensive debt capital. These estimates and the underlying assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates include the value of goodwill, intangibles and other long-lived assets, real estate assets, accounts receivable, contract assets, operating lease assets, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on our best judgment. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Income Taxes

As a REIT for U.S. federal income tax purposes, the Company may deduct earnings distributed to stockholders against the income generated by our REIT operations. The Company continues to be subject to income taxes on the income of its taxable REIT subsidiaries. Our consolidated net loss before income taxes was ~~$13.6~~$67.6 million for the three months ended ~~June~~September 30, 2023 and ~~$32.3~~$99.9 million for the ~~six~~nine months ended ~~June~~September 30, 2023. ~~Our provision for income taxes was $0.3 million for the three months ended June~~The Company’s consolidated balance sheet as of September 30, 2023 consists of a $2.2 million net deferred tax asset at NHF TRS, LLC and ~~$1.1~~a $1.5 million net deferred tax liability at NREO TRS, Inc. for ~~the six months ended June 30, 2023.~~a consolidated net Deferred Tax asset of $0.7 million.

The Company’s tax provision for interim periods is determined using an estimate of its annual current and deferred effective tax rates, adjusted for discrete items. Our effective tax rates for the three and ~~six~~nine months ended ~~June~~September 30,

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2023 were ~~(2.27)~~(0.49)% and ~~(3.45)~~(1.45)%, respectively. Our effective tax rate differs from the U.S. federal statutory corporate tax rate of 21.0% primarily due to our REIT operations generally not being subject to federal income taxes.

3. Business Change

As discussed in Note 1, ~~and Note 2,~~ on the Deregistration Date, the SEC issued an order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act. The issuance of the Deregistration Order enabled the Company to proceed with full implementation of the Business Change. Upon the Deregistration Order, the Company discontinued the use of guidance in FASB ASC 946. To effectuate this change, the fair values of the Company’s investments became the July 1, 2022 cost basis. The change also required the consolidation of several investments that were previously not required to be consolidated under FASB ASC 946.

4. Investments in Real Estate Subsidiaries

The Company conducts its operations through the OP, which owns several real estate properties through single asset limited liability companies that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. All of the properties the SPEs own are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company.

~~Table of Contents~~

As of ~~June~~September 30, 2023, the Company, through the OP, owned four properties through SPEs. The following table represents the Company’s ownership in each property by virtue of its 100% ownership of the SPEs that directly own the title to each property as of ~~June~~September 30, 2023:


					Effective Ownership Percentage at						Effective Ownership Percentage at
Property Name	Property Name		Location	Year Acquired	June 30, 2023		Property Name		Location	Year Acquired	September 30, 2023
White Rock Center	White Rock Center		Dallas, Texas	2013	100	%	White Rock Center		Dallas, Texas	2013	100	%
5916 W Loop 289	5916 W Loop 289		Lubbock, Texas	2013	100	%	5916 W Loop 289		Lubbock, Texas	2013	100	%
Cityplace Tower	Cityplace Tower		Dallas, Texas	2018	100	%	Cityplace Tower		Dallas, Texas	2018	100	%
NexPoint Dominion Land, LLC	NexPoint Dominion Land, LLC	(1)	Plano, Texas	2022	100	%	NexPoint Dominion Land, LLC	(1)	Plano, Texas	2022	100	%


(1)NexPoint Dominion Land, LLC owns 100% of 21.5 acres of undeveloped land in Plano, Texas.

5. Consolidated Real Estate Investments

As of ~~June~~September 30, 2023, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands):


Operating Properties	Operating Properties	Land		Buildings and Improvements		Intangible Lease Assets		Intangible Lease Liabilities		Construction in Progress		Furniture, Fixtures, and Equipment		Totals		Operating Properties	Land		Buildings and Improvements		Intangible Lease Assets		Intangible Lease Liabilities		Construction in Progress		Furniture, Fixtures, and Equipment		Totals
White Rock Center	White Rock Center	$	1,315	$	10,314	$	1,921	$	(101)	$	—	$	5	$	13,454	White Rock Center	$	1,315	$	10,345	$	1,921	$	(101)	$	—	$	5	$	13,485
5916 W Loop 289	5916 W Loop 289	1,081		2,939		—		—		—		—		4,020		5916 W Loop 289	1,081		2,938		—		—		—		—		4,019
Cityplace Tower	Cityplace Tower	18,812		168,633		9,058		(6,669)		39,654		357		229,845		Cityplace Tower	18,812		184,907		9,058		(6,669)		24,928		357		231,393
NexPoint Dominion Land, LLC	NexPoint Dominion Land, LLC	26,500		—		—		—		—		—		26,500		NexPoint Dominion Land, LLC	26,500		—		—		—		—		—		26,500
		47,708		181,886		10,979		(6,770)		39,654		362		273,819			47,708		198,190		10,979		(6,770)		24,928		362		275,397
Accumulated depreciation and amortization	Accumulated depreciation and amortization	—		(8,478)		(5,335)		1,486		—		(210)		(12,537)		Accumulated depreciation and amortization	—		(11,295)		(6,155)		1,857		—		(223)		(15,816)
Total Operating Properties	Total Operating Properties	$	47,708	$	173,408	$	5,644	$	(5,284)	$	39,654	$	152	$	261,282	Total Operating Properties	$	47,708	$	186,895	$	4,824	$	(4,913)	$	24,928	$	139	$	259,581

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As of December 31, 2022, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands):


Operating Properties	Land		Buildings and Improvements		Intangible Lease Assets		Intangible Lease Liabilities		Construction in Progress		Furniture, Fixtures, and Equipment		Totals
White Rock Center	$	1,315	$	10,314	$	1,921	$	(101)	$	—	$	5	$	13,454
5916 W Loop 289	1,081		2,939		—		—		—		—		4,020
Cityplace Tower	18,812		161,216		9,058		(6,669)		39,731		349		222,497
NexPoint Dominion Land, LLC	26,500		—		—		—		—		—		26,500
	47,708		174,469		10,979		(6,770)		39,731		354		266,471
Accumulated depreciation and amortization	—		(4,114)		(2,863)		743		—		(181)		(6,415)
Total Operating Properties	$	47,708	$	170,355	$	8,116	$	(6,027)	$	39,731	$	173	$	260,056

Depreciation expense was ~~$2.3~~$2.8 million and ~~$4.4~~$7.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Amortization expense related to the Company’s intangible lease assets was ~~$1.2~~$0.8 million and ~~$2.5~~$3.3 million ~~for the Company’s intangible lease liabilities~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Amortization expense related to the Company's intangible lease liabilities was $0.4 million and ~~$0.7~~$1.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. The net amount amortized as an increase to rental revenue for capitalized above and below-market lease intangibles was ~~$0.4~~$0.3 million and ~~$0.7~~$0.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively.

Acquisitions

There were no acquisitions by the Company for the ~~six~~nine months ended ~~June~~September 30, 2023.

6. Debt

Cityplace Debt

The Company has debt on its ~~office and hospitality~~ real estate property pursuant to a Loan Agreement, originally dated August 15, 2018 and subsequently amended (the “Loan Agreement”). The debt is limited recourse to the Company and encumbers the property. The debt had an original maturity of September 8, 2022, and the Company deferred the maturity date with the lender to May 8, 2023, with the possibility to extend for an additional four months to September 8, 2023 provided certain metrics ~~are~~were met. On May 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by four months to September 8, 2023. Also on May 8, 2023, the parties to the Loan Agreement agreed to convert the index upon which the interest rate is based to the one-month secured overnight financing rate ("SOFR") effective as of the first interest period beginning on or after May 8, 2023. On September 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by six months to March 8, 2024. The debt restructuring per the terms of the ~~Eleventh~~Twelfth Omnibus Amendment Agreement is considered a debt modification. The purpose of the deferral was to allow for continued discussions around refinancing the debt. Management recognizes that finding an alternative source of funding is necessary to repay the debt by the maturity date. Management is evaluating multiple options to fund the repayment of the ~~$143.5~~$142.9 million principal balance outstanding as of ~~June~~September 30, 2023, including refinancing the debt, securing additional equity or debt financing, selling a portion of the portfolio, or any combination thereof. Management believes that there is sufficient time before the maturity date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. The below table contains summary information related to the mortgages payable (dollars in thousands):

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		Outstanding principal as of June 30, 2023		Interest Rate		Maturity Date		Outstanding principal as of September 30, 2023		Interest Rate		Maturity Date
Note A-1	Note A-1	$	101,955	7.50	%	9/8/2023	Note A-1	$	101,535	7.69	%	3/8/2024
Note A-2	Note A-2	22,303		11.50	%	9/8/2023	Note A-2	22,211		11.69	%	3/8/2024
Note B-1	Note B-1	12,835		7.50	%	9/8/2023	Note B-1	12,782		7.69	%	3/8/2024
Note B-2	Note B-2	3,186		11.50	%	9/8/2023	Note B-2	3,173		11.69	%	3/8/2024
Mezzanine Note 1	Mezzanine Note 1	2,807		11.50	%	9/8/2023	Mezzanine Note 1	2,796		11.69	%	3/8/2024
Mezzanine Note 2	Mezzanine Note 2	401		11.50	%	9/8/2023	Mezzanine Note 2	399		11.69	%	3/8/2024
Mortgages payable	Mortgages payable	143,487					Mortgages payable	142,896
Deferred financing costs, net	Deferred financing costs, net	(66)					Deferred financing costs, net	(335)
Mortgages payable, net	Mortgages payable, net	$	143,421				Mortgages payable, net	$	142,561

The weighted average interest rate of the Company’s debt related to its Cityplace investment was ~~8.3%~~8.5% as of ~~June~~September 30, ~~2023.~~2023 and 7.3% as of December 31, 2022.

The Loan Agreement ~~contain~~contains customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of ~~June~~September 30, 2023, the Company believes it is in compliance with all covenants.

Notes Payable

On August 9, 2022, the Company borrowed approximately $13.3 million from the seller, Gabriel Legacy, LLC to finance its acquisition of 21.5 acres of land in Plano, Texas held through NexPoint Dominion Land, LLC, a wholly owned subsidiary of the OP. Due to the short term nature of the note, the fair value of the note is approximately the outstanding balance. The note bears interest at an annual rate equal to the WSJ Prime Rate and matures on August 8, 2025.

Credit Facility

On January 8, 2021, the Company entered into a $30.0 million credit facility (the "Credit Facility") with Raymond James Bank, N.A. and drew the full balance. The Credit Facility, as amended, ~~matures~~would have matured on November 6, 2023, (see Note 16 for information regarding the extension of the maturity date of the Credit Facility) and as of ~~June~~September 30, 2023, bore interest at the one-month SOFR plus 4.25%. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company paid down ~~$6.0~~$9.0 million on the Credit Facility. As of ~~June~~September 30, 2023, the Credit Facility had an outstanding balance of ~~$5.0~~$2.0 million. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. Management believes that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

Revolving Credit Facility

On May 22, 2023, the Company entered into a $20.0 million revolving credit facility (the "NexBank Revolver") with NexBank, in the initial principal balance of $20.0 million, with the option for the Company to receive additional disbursements thereunder up to a maximum of $50.0 million. As of ~~June~~September 30, 2023,, the NexBank Revolver bears interest at one-month SOFR plus 3.50% and matures on May 20, 2024, with the option to extend the maturity by one year, twice. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. As of ~~June~~September 30, 2023, the NexBank Revolver had an outstanding balance of $20.0 million.

Deferred Financing Costs

The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheet. Upon

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repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs.

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Prime Brokerage Borrowing

Effective July 2, 2022, the Company entered a prime brokerage account with Jefferies to hold securities owned by the Company. The Company from time to time borrows against the value of these securities. As of ~~June~~September 30, 2023, the Company had a margin balance of approximately ~~$2.1~~$1.8 million outstanding with Jefferies bearing interest at the Overnight Bank Funding Rate plus 0.50%. Securities with a fair value of approximately ~~$10.2~~$6.9 million are pledged as collateral against this margin balance. This arrangement has no stated maturity date. Due to the floating interest rate nature of the debt, the fair value of the debt is approximately the outstanding balance.

Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to ~~June~~September 30, 2023 are as follows (in thousands):


		Mortgages Payable		Notes Payable		Total			Mortgages Payable		Notes Payable		Prime Brokerage Borrowing		Total
2023	2023	$	143,487	$	5,000	$	148,487	2023	$	—	$	2,000	$	—	$	2,000
2024	2024	—		20,000		20,000		2024	142,896		20,000		—		162,896
2025	2025	—		13,250		13,250		2025	—		13,250		—		13,250
2026	2026	—		—		—		2026	—		—		—		—
2027	2027	—		—		—		2027	—		—		—		—
Thereafter	Thereafter	—		—		—		Thereafter	—		—		1,760		1,760
Total	Total	$	143,487	$	38,250	$	181,737	Total	$	142,896	$	35,250	$	1,760	$	179,906

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7. Variable Interest Entities

As of ~~June~~September 30, 2023, the Company ~~has accounted for~~does not consolidate the ~~following~~ investments below as ~~unconsolidated VIEs:~~it does not have a controlling financial interest in these investments:

~~Entities~~

~~Instrument~~

~~Asset Type~~

~~Percentage Ownership as of June 30, 2023~~

~~Relationship as of June 30, 2023~~

~~Unconsolidated Entities:~~

~~NexPoint Real Estate Finance Operating Partnership, L.P.~~

~~LP interest~~

~~Mortgage~~

~~16.0~~

~~VIE~~

~~VineBrook Homes Operating Partnership, L.P.~~

~~LP interest~~

~~Single-family rental~~

~~11.1~~

~~VIE~~

~~NexPoint SFR Operating Partnership, L.P.~~

~~LP interest~~

~~Single-family rental~~

~~30.8~~

~~VIE~~

~~NexPoint Storage Partners Operating Company, LLC~~

~~LLC interest~~

~~Self-storage~~

~~29.7~~

~~VIE~~

~~NexPoint Storage Partners,~~

Entities

Instrument

Asset Type

Percentage Ownership as of September 30, 2023

Relationship as of September 30, 2023

Unconsolidated Entities:

NexPoint Storage Partners, Inc.

Common stock

Self-storage

53.0

VIE

NexPoint Storage Partners Operating Company, LLC

LLC interest

Self-storage

29.7

VIE

Perilune Aero Equity Holdings One, LLC

LLC interest

Aircraft

16.4

VIE

SFR WLIF III, LLC

LLC interest

Single-family rental

20.0

VIE

NexPoint Real Estate Finance Operating Partnership, L.P.

LP interest

Mortgage

16.0

VIE

VineBrook Homes Operating Partnership, L.P.

LP interest

Single-family rental

11.1

VIE

NexPoint SFR Operating Partnership, L.P.

LP interest

Single-family rental

30.8

VIE

IQHQ Holdings, LP

LP interest

Life science

1.1

VIE

NexAnnuity Holdings, Inc.

Preferred Shares

Annuities

100.0

(1)

VIE

(1) The Company owns 100% of the preferred stock of NexAnnuity Holdings, Inc., but it does not own any of the outstanding common stock of NexAnnunity Holdings, Inc.

~~Common stock~~

~~Self-storage~~

~~53.0~~

~~VIE~~

~~Perilune Aero Equity Holdings One, LLC~~

~~LLC interest~~

~~Aircraft~~

~~16.4~~

~~VIE~~

~~SFR WLIF III, LLC~~

~~LLC interest~~

~~Single-family rental~~

~~20.0~~

~~VIE~~

~~IQHQ Holdings, LP~~

~~LP interest~~

~~Life science~~

~~1.1~~

~~VIE~~

Consolidated VIEs

The Company did not have any consolidated VIEs for the period ended ~~June~~September 30, 2023.

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8. Equity Method Investments

Below is a summary of the Company’s equity method investments as of ~~June~~September 30, 2023 (dollars in thousands):


Investee Name	Investee Name	Instrument	Asset Type	NXDT Percentage Ownership			Investment Basis			Share of Investee's Net Assets (1)		Basis Difference (2)		Share of Earnings (Loss)		Investee Name	Instrument	Asset Type	NXDT Percentage Ownership			Investment Basis			Share of Investee's Net Assets (1)		Basis Difference (2)		Share of Earnings (Loss)
Sandstone Pasadena Apartments, LLC	Sandstone Pasadena Apartments, LLC	LLC interest	Multifamily	50.0	%		$	12,169		$	(9,590)	$	21,759	$	(14)	Sandstone Pasadena Apartments, LLC	LLC interest	Multifamily	50.0	%		$	11,815		$	(9,590)	$	21,405	$	(14)
AM Uptown Hotel, LLC	AM Uptown Hotel, LLC	LLC interest	Hospitality	60.0	%	(3)	26,216			21,334		4,882		245		AM Uptown Hotel, LLC	LLC interest	Hospitality	60.0	%	(3)	24,336			21,334		3,002		(111)
SFR WLIF III, LLC	SFR WLIF III, LLC	LLC interest	Single-family rental	20.0	%		7,306			7,466		(160)		386		SFR WLIF III, LLC	LLC interest	Single-family rental	20.0	%		7,200			7,466		(266)		447
Las Vegas Land Owner, LLC	Las Vegas Land Owner, LLC	LLC interest	Land	77.0	%	(4)	12,312			12,312		—		—		Las Vegas Land Owner, LLC	LLC interest	Land	77.0	%	(4)	12,312			12,312		—		—
Perilune Aero Equity Holdings One, LLC	Perilune Aero Equity Holdings One, LLC	LLC interest	Aircraft	16.4	%		11,587			9,990		1,597		721		Perilune Aero Equity Holdings One, LLC	LLC interest	Aircraft	16.4	%	(7)	11,922			9,990		1,932		1,081
Claymore Holdings, LLC	Claymore Holdings, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—		—		—		Claymore Holdings, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—		—		—
Allenby, LLC	Allenby, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—		—		—		Allenby, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—		—		—
							$	69,590		$	41,512	$	28,078	$	1,338							$	67,585		$	41,512	$	26,073	$	1,403

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Below is a summary of the Company’s equity method investments as of December 31, 2022 (dollars in thousands):


Investee Name	Investee Name	Instrument	Asset Type	NXDT Percentage Ownership			Investment Basis			Share of Investee's Net Assets (1)				Basis Difference (2)		Share of Earnings (Loss)		Investee Name	Instrument	Asset Type	NXDT Percentage Ownership			Investment Basis			Share of Investee's Net Assets (1)				Basis Difference (2)		Share of Earnings (Loss)
Sandstone Pasadena Apartments, LLC	Sandstone Pasadena Apartments, LLC	LLC interest	Multifamily	50.0	%		$	13,013		$	—			$	13,013	$	(217)	Sandstone Pasadena Apartments, LLC	LLC interest	Multifamily	50.0	%		$	13,013		$	—			$	13,013	$	(217)
AM Uptown Hotel, LLC	AM Uptown Hotel, LLC	LLC interest	Hospitality	60.0	%	(3)	27,136			21,334				5,802		(227)		AM Uptown Hotel, LLC	LLC interest	Hospitality	60.0	%	(3)	27,136			21,334				5,802		(227)
SFR WLIF III, LLC	SFR WLIF III, LLC	LLC interest	Single-family rental	20.0	%		7,272			7,466				(194)		280		SFR WLIF III, LLC	LLC interest	Single-family rental	20.0	%		7,272			7,466				(194)		280
Las Vegas Land Owner, LLC	Las Vegas Land Owner, LLC	LLC interest	Land	77.0	%	(4)	12,312			12,312				—		—		Las Vegas Land Owner, LLC	LLC interest	Land	77.0	%	(4)	12,312			12,312				—		—
Perilune Aero Equity Holdings One, LLC	Perilune Aero Equity Holdings One, LLC	LLC interest	Aircraft	16.4	%		10,923			8,751				2,172		665		Perilune Aero Equity Holdings One, LLC	LLC interest	Aircraft	16.4	%	(7)	10,923			8,751				2,172		665
Claymore Holdings, LLC	Claymore Holdings, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—				—		—		Claymore Holdings, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—				—		—
Allenby, LLC	Allenby, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—				—		—		Allenby, LLC	LLC interest	N/A	50.0	%	(5)	—		(6)	—				—		—
							$	70,656		$	49,863	$	—	$	20,793	$	501							$	70,656		$	49,863	$	—	$	20,793	$	501

Below is a summary of the Company's investments as of ~~June~~September 30, 2023 that qualify for equity method accounting for which the Company has elected to account for using the fair value option. Amounts are included in "investments, at fair value" on the consolidated balance sheet.


Investee Name	Investee Name	Instrument	Asset Type	NXDT Percentage Ownership			Fair Value			Investee Name	Instrument	Asset Type	NXDT Percentage Ownership			Fair Value
NexPoint Real Estate Finance Operating Partnership, L.P.	NexPoint Real Estate Finance Operating Partnership, L.P.	LP interest	Mortgage	16.0	%	(7)	$	75,909	(6)	NexPoint Real Estate Finance Operating Partnership, L.P.	LP interest	Mortgage	16.0	%	(7)	$	79,658
NexPoint Real Estate Finance, Inc.	NexPoint Real Estate Finance, Inc.	Common stock	Mortgage	12.2	%	(7)	32,739		(6)	NexPoint Real Estate Finance, Inc.	Common stock	Mortgage	12.2	%	(7)	34,356

VineBrook Homes Operating Partnership, L.P.	VineBrook Homes Operating Partnership, L.P.	LP interest	Single-family rental	11.1	%	(7)	167,305		(6)	VineBrook Homes Operating Partnership, L.P.	LP interest	Single-family rental	11.1	%	(7)	146,419
NexPoint Storage Partners, Inc.	NexPoint Storage Partners, Inc.	Common stock	Self-storage	53.0	%	(3)	105,006		(6)	NexPoint Storage Partners, Inc.	Common stock	Self-storage	53.0	%	(3)	69,484
NexPoint Storage Partners Operating Company, LLC	NexPoint Storage Partners Operating Company, LLC	LLC interest	Self-storage	29.7	%		57,220		(6)	NexPoint Storage Partners Operating Company, LLC	LLC interest	Self-storage	29.7	%		37,863
NexPoint SFR Operating Partnership, L.P.	NexPoint SFR Operating Partnership, L.P.	LP interest	Single-family rental	30.8	%		49,720		(6)	NexPoint SFR Operating Partnership, L.P.	LP interest	Single-family rental	30.8	%		49,568
NexPoint Hospitality Trust	NexPoint Hospitality Trust	Common stock	Hospitality	45.4	%		16,964		(6)	NexPoint Hospitality Trust	Common stock	Hospitality	45.4	%		9,500
LLV Holdco, LLC	LLV Holdco, LLC	LLC interest	Land	26.8	%		3,373		(6)	LLV Holdco, LLC	LLC interest	Land	26.8	%		3,267
							$	508,236								$	430,115

(1)Represents the Company’s percentage share of net assets of the investee per the investee’s books and records.

(2)Represents the difference between the basis at which the investments in unconsolidated ventures are carried by the Company and the Company's proportionate share of the equity method investee's net assets. To the extent

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that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of equity in earnings of the joint venture.

(3)The Company owns greater than 50% of the outstanding common equity but is not deemed by the Company to be the primary beneficiary (for a VIE) or have a controlling financial interest of the investee and as such, accounts for the investee using the equity method.

(4)The Company owns 100% of Las Vegas Land Owner, LLC which owns 77% of a joint venture that owns an 8.5 acre tract of land (the "Tivoli North Property") ~~as described below.~~. Through ~~the TIC (as defined below),~~a tenants in common arrangement, the Company shares control and as such accounts for this investment using the equity method.

(5)The Company has a 50% non-controlling interest in Claymore Holdings, LLC (“Claymore”) and Allenby, LLC, (“Allenby”). The Company has determined it is not the primary beneficiary and does not consolidate these entities.

(6)The Company has elected the fair value option with respect to these investments. The basis in these investments is their ~~June~~September 30, 2023 fair value.

(7)The Company owns less than 20% of the investee but has significant influence due to members of the management team serving on the board of the investee or its parent and as such, accounts for the investee using the equity method.

~~Sandstone~~

On May 29, 2015, the Company, via a wholly owned subsidiary, invested $12 million in Sandstone Pasadena Apartments, LLC ("Sandstone"), which beneficially owns a 696-unit multifamily property (the “Ashmore”) located in Pasadena, Texas. This contribution by the Company gave it an initial ownership percentage of 83.3%. Sandstone and the Ashmore are managed by Knightvest 2015, LLC (the “Sandstone Manager”). The LLC agreement of Sandstone vests the Sandstone Manager with the exclusive right, power, authority and discretion in conducting the business of Sandstone, subject to certain exceptions. Since the Company does not have a controlling financial interest, it does not consolidate Sandstone and therefore uses the equity method of accounting. Per the Sandstone organizational documents, the Company was entitled to a return on unreturned equity of 10%, which compounded annually. There was a capital event in 2018 which led to a full return of the Company’s and the other member’s equity in Sandstone. This triggered a change in the distribution-sharing percentage, which is now effectively 50% for the Company. The Sandstone Manager determines the monthly distributions at their discretion. As of June 30, 2023, the Company still maintains 50% ownership of Sandstone.

~~Marriott Uptown~~

On June 8, 2018, the Company, through a subsidiary, initially invested amounts in exchange for which it received an approximately 85% interest in AM Uptown Hotel, LLC, (“AM Uptown”) which beneficially owns a 255-key upscale hotel (the “Marriott Uptown”) located in Dallas, Texas. AM Uptown appointed Alamo Manhattan Properties, LLC (“Alamo Manhattan”) as the manager to manage and operate the Marriott Uptown. The management, control and direction of AM Uptown and its operations, business and affairs is vested exclusively in Alamo Manhattan, which has the right, power, and authority, acting solely by itself to carry out all the purposes of AM Uptown. The Company does not participate in the management, control, or direction of AM Uptown’s operations, business, or affairs and has no substantive kickout rights over Alamo Manhattan. Since the Company does not have a controlling financial interest, it does not consolidate AM Uptown and therefore uses the equity method of accounting. As of June 30, 2023, the Company maintains 60% ownership interest of AM Uptown due to previous capital events that triggered a change in the distribution-sharing percentage and ownership percentage.

~~SFR WLIF III~~

On July 11, 2019, the Company initially invested amounts in exchange for which it received an approximately 20% interest in SFR WLIF III, LLC, an SPE designed to hold an investment in debt issued to VineBrook Homes Operating Partnership, L.P. (the "VB OP"), an entity that manages single family rental properties, whose parent is advised by an affiliate of the Adviser. The loan to the VB OP bears interest at 1-month SOFR plus 155 basis points, matures on December 1, 2025, and has an outstanding principal balance of $238.5 million. SFR WLIF III, LLC is managed, directly or indirectly, by an affiliate of the Adviser. As the Company is not the primary beneficiary in this entity, it is accounted for as an equity method investment.

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~~Tivoli~~

On March 30, 2022, the Company invested in Las Vegas Land Owner, LLC ("Tivoli"), a joint venture that owns the Tivoli North Property, comprised of an 8.5-acre tract of land, upon which site Tivoli plans to develop a 300-unit multifamily apartment community directly adjacent to Tivoli Village, a high-end mixed-use center in Las Vegas, Clark County, Nevada. On August 8, 2022 the joint venture was restructured to a tenants-in-common arrangement (the "TIC"). Post restructure, the Company owns 100% of Tivoli, and Tivoli owns 77% of the underlying land investment. Members of the TIC must unanimously agree on certain major decisions regarding the underlying investment giving the Company shared control, and as such, the Company accounts for the TIC investment using the equity method.

~~Perilune~~

The Company is a 16.4% member of Perilune Aero Equity Holdings One, LLC ("Perilune"). Perilune is a pooled investment vehicle created to finance, acquire, lease and/or sell two aircraft through subordinated or other lending arrangements and/or direct or indirect equity investments. Due to the timing of the receipt of financial statements from Perilune, the Company applies up to a 90 day lag reporting for this investment. In instances where the timing of the receipt of financial statements exceeds the 90 day window, earnings for the period are estimated. Since Perilune is a partnership-like LLC, and the Company holds more than an insignificant ownership percentage but is not the primary beneficiary, the investment is accounted for using the equity method.

~~Claymore and Allenby~~

The Company owns noncontrolling interests in two LLCs, Claymore and Allenby, created to hold litigation claims. The probability, timing, and potential amount of recovery, if any, are unknown as of June 30, 2023. Since the Company does not have controlling financial interests in these entities, they are accounted for as equity method investments.

~~NexPoint Real Estate Finance Operating Partnership, L.P.~~

In February 2020, the Company contributed assets to certain subsidiaries of the then-newly formed NexPoint Real Estate Finance Operating Partnership, L.P. (the "NREF OP"), the operating partnership of a publicly traded mortgage REIT, in exchange for equity in those subsidiaries. The equity in the subsidiaries owned by the Company, including additional equity received upon receipt of liquidating distributions from other vehicles that contributed to the NREF OP, was subsequently contributed to the Company's wholly owned subsidiary NexPoint Real Estate Opportunities, LLC ("NREO") and redeemed for limited partnership units in the NREF OP. The NREF OP is the operating partnership of NexPoint Real Estate Finance, Inc. ("NREF"), a public mortgage REIT managed by an affiliate of the Adviser. The Company, through NREO, owns approximately 16.0% of the common units of limited partnership of the NREF OP ("NREF OP Units"), and is not considered the primary beneficiary.

~~NexPoint Real Estate Finance, Inc.~~

On December 23, 2022, the Company, through NREO, redeemed 2,100,000 NREF OP Units for 2,100,000 shares of common stock of NREF. The Company, through NREO owns approximately 12.2%, of NREF’s common stock. The Company owns less than 20% of the investee and does not have a controlling financial interest but has significant influence due to members of the management team serving on the board of the investee, and as such, the investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option.

~~VineBrook Homes Operating Partnership, L.P.~~

On November 1, 2018, the Company through NREO contributed $70.7 million to the VB OP in exchange for limited partnership units. The VB OP is the operating partnership of VineBrook Homes Trust, Inc. ("VineBrook"), a private single-family rental REIT managed by an affiliate of the Adviser. The Company owns less than 20% of the investee but has significant influence due to members of the management team serving on the board of VineBrook and as such, the investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option. The Company, through NREO, owns approximately 11.1% of the common units of the VB OP as of June 30, 2023 and is not considered the primary beneficiary.

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~~NexPoint Storage Partners, Inc.~~

In November 2020, the Company’s preferred stock investment in Jernigan Capital, Inc. was converted into common shares of NexPoint Storage Partners, Inc. ("NSP") as part of a transaction where affiliates of the Adviser took Jernigan Capital, Inc. private. NSP is a privately owned self-storage REIT. As of June 30, 2023, the Company owns 53.0% of the outstanding common stock of NSP. The Company has determined that it is not the primary beneficiary of NSP. The investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option.

~~NexPoint Storage Partners Operating Company, LLC.~~

On December 8, 2022, the Company, through NREO, contributed all of its interests in the joint ventures (the "SAFStor Ventures") with SAFStor NREA GP – I, LLC, SAFStor NREA GP – II, LLC and NREA GP – III, LLC to NexPoint Storage Partners Operating Company, LLC (the "NSP OC") in exchange for 47,064 newly created Class B Units of the NSP OC. The NSP OC is the operating company of NSP. As of June 30, 2023, the Company owns approximately 29.7% of the outstanding combined classes of common units of the NSP OC (the “NSP OC Common Units") and is not the primary beneficiary, and as such, the investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option.

~~NexPoint SFR Operating Partnership, L.P.~~

On June 8, 2022, the Company, directly or through one or more subsidiaries, contributed $25.0 million to the newly formed NexPoint SFR Operating Partnership, L.P. (the "SFR OP") in exchange for common units of the SFR OP (the “SFR OP Units"). Additionally, on June 8, 2022, the Company, directly or through one or more subsidiaries, loaned $25.0 million to the SFR OP in exchange for $25.0 million of 7.50% convertible notes of the SFR OP (the “SFR OP Convertible Notes") that are interest only during the term and mature on June 30, 2027. The SFR OP is a subsidiary of NexPoint Homes Trust, Inc. ("NXHT"), a single-family rental REIT managed by an affiliate of the Adviser. Subsequent to June 8, 2022 and through December 31, 2022, the Company, directly or through one or more subsidiaries, contributed approximately an additional $27.5 million to the SFR OP in exchange for SFR OP Units. Subsequent to June 8, 2022 and through December 31, 2022, the Company, directly or through one or more subsidiaries, contributed approximately an additional $1.0 million to the SFR OP in exchange for SFR OP Units through distribution reinvestments. Additionally, subsequent to June 8, 2022 and through December 31, 2022, the Company, directly or through one or more subsidiaries, loaned an additional $5.0 million to the SFR OP in exchange for $5.0 million of SFR OP Convertible Notes. On April 18, 2023, the SFR OP paid down approximately $8.5 million of the SFR OP Convertible Notes. Subsequent to January 1, 2023 and through June 30, 2023, the Company received 27,261 SFR OP Units in lieu of cash dividends. On June 30, 2023, the SFR OP Units were reclassified into Class A, Class B and Class C Common Units, with the SFR OP Units held by the Company being reclassified as Class B Common Units. As a result of the reclassification, the Company has 50% of the voting power of the SFR OP Units, including with respect to the election of directors to the board of directors of the SFR OP. As of June 30, 2023, the Company, owns approximately 30.8% of the outstanding units of SFR OP and does not have a controlling financial interest. The investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option.

~~NexPoint Hospitality Trust~~

As of June 30, 2023, the Company owns 45.4% of the outstanding common stock of NexPoint Hospitality Trust ("NHT") and does not have a controlling financial interest. The investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option. NHT is a publicly traded hospitality REIT that owns 10 properties located throughout the United States. NHT is managed by an affiliate of the Adviser. NHT is listed on the TSX Venture Exchange under the ticker NHT.U.

~~LLV Holdco, LLC~~

As of June 30, 2023, the Company owns approximately 26.8% of the series A and B equity units of LLV Holdco, LLC (“LLV”) and does not have a controlling financial interest. The investment qualifies to be accounted for using the equity method. However, management has elected to account for the investment using the fair value option. Additionally, the Company owns $12.4 million par of LLV's senior revolving loan maturing December 31, 2023 and paying interest at a fixed rate of 5% per annum. LLV specializes in managing real estate assets, which are ultimately sold to both residential

~~Table of Contents~~

~~and commercial developers. LLV owns approximately 300 gross acres of undeveloped land, of which 115 acres are developable near Lake Las Vegas in Henderson, Nevada.~~

Significant Equity Method Investments

The table below presents the unaudited summary balance sheets for the Company’s significant equity method investments as of ~~June~~September 30, 2023 (dollars in thousands). ~~NREF, NSP~~NexPoint Real Estate Finance, Inc. ("NREF"), NexPoint Storage Partners, Inc. ("NSP") and VineBrook Homes Trust, Inc. ("VineBrook") do not prepare standalone financials for their operating companies as all operations and investments are owned through their operating companies and are consolidated by the corporate entities. As such, only the financial information for NREF, NSP and VineBrook are presented below.


		NREF		VineBrook		NSP			NREF		VineBrook		NSP

ASSETS	ASSETS							ASSETS
Investments	Investments	$	7,523,160	$	2,500	$	—	Investments	$	6,814,871	$	2,500	$	—
Real estate assets	Real estate assets	58,613		3,489,153		1,217,297		Real estate assets	58,563		3,359,816		1,205,678
Cash and cash equivalents	Cash and cash equivalents	19,657		62,747		22,208		Cash and cash equivalents	10,977		34,115		12,746
Other assets	Other assets	1,805		122,298		210,082		Other assets	1,942		208,109		191,441
TOTAL ASSETS	TOTAL ASSETS	$	7,603,235	$	3,676,698	$	1,449,587	TOTAL ASSETS	$	6,886,353	$	3,604,540	$	1,409,865

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY							LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:	Liabilities:							Liabilities:
Debt	Debt	$	1,248,549	$	2,592,311	$	904,248	Debt	$	1,212,740	$	2,487,524	$	890,508
Other liabilities	Other liabilities	5,888,498		125,732		417,138		Other liabilities	5,239,450		148,345		402,928
Total Liabilities	Total Liabilities	7,137,047		2,718,043		1,321,386		Total Liabilities	6,452,190		2,635,869		1,293,436

Redeemable noncontrolling interests in the operating company	Redeemable noncontrolling interests in the operating company	94,545		466,920		205,114		Redeemable noncontrolling interests in the operating company	89,148		482,149		211,082
Noncontrolling interests in consolidated VIEs	Noncontrolling interests in consolidated VIEs	—		12,705		3,970		Noncontrolling interests in consolidated VIEs	—		12,786		—
Total Shareholders' Equity	Total Shareholders' Equity	371,643		479,030		(80,883)		Total Shareholders' Equity	345,015		473,736		(94,653)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	7,603,235	$	3,676,698	$	1,449,587	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,886,353	$	3,604,540	$	1,409,865

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The table below presents the unaudited summary statement of operations for the ~~six~~nine months ended ~~June~~September 30, 2023 for the Company’s significant equity method investments (dollars in thousands).


		NREF		VineBrook		NSP			NREF		VineBrook		NSP

Revenues	Revenues							Revenues
Rental income	Rental income	$	2,035	$	171,911	$	54,418	Rental income	$	3,057	$	259,121	$	83,851
Net interest income	Net interest income	8,154		—		2,032		Net interest income	12,971		—		1,527
Other income	Other income	—		2,837		3,076		Other income	—		4,362		6,154
Total revenues	Total revenues	10,189		174,748		59,526		Total revenues	16,028		263,483		91,532

Expenses	Expenses							Expenses
Total expenses	Total expenses	10,618		243,805		67,903		Total expenses	16,950		368,968		103,968

Gain (loss) on sales of real estate	Gain (loss) on sales of real estate	—		(30,454)		(8,276)		Gain (loss) on sales of real estate	—		(65,108)		(8,276)
Other income (expense)	Other income (expense)	18,284		(41,910)		(62,515)		Other income (expense)	1,727		(43,130)		(77,006)
Unrealized gain (loss) on derivatives	Unrealized gain (loss) on derivatives	—		25,852		—		Unrealized gain (loss) on derivatives	—		6,297		—
Total comprehensive income (loss)	Total comprehensive income (loss)	$	17,855	$	(115,569)	$	(79,168)	Total comprehensive income (loss)	$	805	$	(207,426)	$	(97,718)

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9. Fair Value of Derivatives and Financial Instruments

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The table below summarizes the inputs used to value the Company’s assets carried at fair value on a recurring basis as of ~~June~~September 30, 2023 (in thousands):


				Fair Value											Fair Value
		Cost Basis		Level 1		Level 2		Level 3		Total			Cost Basis		Level 1		Level 2		Level 3		Total
Assets	Assets											Assets
Bond	Bond	$	17	$	—	$	25	$	—	$	25	Bond	$	17	$	—	$	22	$	—	$	22
CLO	CLO	34,958		—		563		4,853		5,416		CLO	34,958		—		563		18,251		18,814
Common stock	Common stock	314,498		43,968		—		221,863		265,831		Common stock	311,789		41,605		—		180,873		222,478
Convertible notes	Convertible notes	46,260		—		—		43,731		43,731		Convertible notes	46,260		—		—		43,448		43,448
Life settlement		64,267		—		—		60,619		60,619

LLC interest	LLC interest	66,492		—		—		60,593		60,593		LLC interest	66,492		—		—		41,148		41,148
LP interest	LP interest	323,054		—		75,909		217,024		292,933		LP interest	324,494		—		79,658		195,987		275,645
Preferred Shares												Preferred Shares	66,955		—		—		66,955		66,955
Rights and warrants	Rights and warrants	3,937		—		3,558		—		3,558		Rights and warrants	3,937		—		3,751		—		3,751
Senior loan	Senior loan	40,399		—		55		40,515		40,570		Senior loan	41,428		—		58		41,867		41,925
		$	893,882	$	43,968	$	80,110	$	649,198	$	773,276		$	896,330	$	41,605	$	84,052	$	588,529	$	714,186

The table below summarizes the inputs used to value the Company’s assets carried at fair value on a recurring basis as of December 31, 2022 (in thousands):

Fair Value
Cost Basis Level 1 Level 2 Level 3 Total
Assets
Bond $ 17 $ — $ 20 $ — $ 20
CLO 34,958 — 563 6,412 6,975
Common stock 325,275 53,872 — 234,667 288,539
Convertible notes 54,802 — — 50,828 50,828
Life settlement 64,267 — — 67,711 67,711
LLC interest 66,492 — — 60,836 60,836
LP interest 321,026 — 77,370 223,141 300,511
Rights and warrants 3,947 — 3,794 — 3,794
Senior loan 43,399 — 66 43,341 43,407
$ 914,183 $ 53,872 $ 81,813 $ 686,936 $ 822,621
~~The table be~~


			Fair Value
	Cost Basis		Level 1		Level 2		Level 3		Total
Assets
Bond	$	17	$	—	$	20	$	—	$	20
CLO	34,958		—		563		6,412		6,975
Common stock	325,275		53,872		—		234,667		288,539
Convertible notes	54,802		—		—		50,828		50,828

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~~low~~


Life settlement	64,267		—		—		67,711		67,711
LLC interest	66,492		—		—		60,836		60,836
LP interest	321,026		—		77,370		223,141		300,511
Rights and warrants	3,947		—		3,794		—		3,794
Senior loan	43,399		—		66		43,341		43,407
	$	914,183	$	53,872	$	81,813	$	686,936	$	822,621

The table below sets forth a summary of changes in the Company’s Level 3 assets (assets measured at fair value using significant unobservable inputs) for the ~~six~~nine months ended ~~June~~September 30, 2023 (in thousands):


		December 31, 2022		Contributions/ Purchases		Paid in- kind dividends		Redemptions/ Conversions		Return of capital		Realized gain/(loss)		Unrealized gain/(loss)		June 30, 2023			December 31, 2022		Contributions/ Purchases		Paid in- kind dividends		Redemptions/ Conversions		Return of capital		Realized gain/(loss)		Unrealized gain/(loss)		September 30, 2023
CLO	CLO	$	6,412	$	—	$	—	$	—	$	—	$	—	$	(1,559)	$	4,853	CLO	$	6,412	$	—	$	—	$	—	$	—	$	—	$	11,839	$	18,251
Common stock	Common stock	234,667		—		—		—		—		—		(12,804)		221,863		Common stock	234,667		—		—		—		—		—		(53,794)		180,873
Convertible notes	Convertible notes	50,828		(8,542)		—		—		—		—		1,445		43,731		Convertible notes	50,828		(8,542)		—		—		—		—		1,162		43,448
Life settlement	Life settlement	67,711		2,532		—		(2,999)		—		(502)		(6,123)		60,619		Life settlement	67,711		3,355		—		(67,506)		—		(1,101)		(2,459)		—
LLC interest	LLC interest	60,836		—		—		—		—		—		(243)		60,593		LLC interest	60,836		70,222		—		(68,500)		—		(1,722)		(19,688)		41,148
LP interest	LP interest	223,141		2,028		—		—		—		—		(8,145)		217,024		LP interest	223,141		3,467		—		—		—		—		(30,621)		195,987

Preferred Shares																		Preferred Shares	—		68,500		455		(2,000)		—		—		—		66,955
Senior loan	Senior loan	43,341		—		1,960		(4,971)		—		11		174		40,515		Senior loan	43,341		—		2,989		(4,971)		—		11		497		41,867
Total	Total	$	686,936	$	(3,982)	$	1,960	$	(7,970)	$	—	$	(491)	$	(27,255)	$	649,198	Total	$	686,936	$	137,002	$	3,444	$	(142,977)	$	—	$	(2,812)	$	(93,064)	$	588,529

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The following is a summary of the significant unobservable inputs used in the fair valuation of assets categorized within Level 3 of the fair value hierarchy as of ~~June~~September 30, 2023.

~~Table of Contents~~


Category	Category	Valuation Technique	Significant Unobservable Inputs	Input Value(s) (Arithmetic Mean)				Fair Value		Category	Valuation Technique	Significant Unobservable Inputs	Input Value(s) (Arithmetic Mean)				Fair Value
CLO	CLO	Discounted Net Asset Value	Discount		70%			$	4,853	CLO	Discounted Net Asset Value	Discount		70%			$	18,251

Common Stock	Common Stock	Market Approach	Unadjusted Price/MHz-PoP	$0.09	—	$0.90	$(0.50)	221,863		Common Stock	Market Approach	Unadjusted Price/MHz-PoP	$0.10	—	$0.90	$(0.48)	180,873
			NAV / sh multiple	$1.10x	—	$1.45x	$(1.28)x
		Discounted Cash Flow	Discount Rate	7.5%	—	11.50%	(9.61)%				Discounted Cash Flow	Discount Rate	7.75%	—	12.50%	(10.2)%
			Market Rent (per sqft)	$4.48	—	$32.55	$(14.00)					Market Rent (per sqft)	$4.91	—	$24.98	$(14.95)
			RevPAR	$71.00	—	$186.00	$(104.89)					RevPAR	$95.00	—	$203.00	$(127.78)
			Capitalization Rates	5.5%	—	9.875%	(8.66)%					Capitalization Rates	5.38%	—	10%	(8.88)%
		NAV Approach	Discount Rate		10.00%						NAV Approach	Discount Rate		10.00%
		Multiples Analysis	Multiple of EBITDA	3.25x	—	4.25x	(3.75)x				Multiples Analysis	Multiple of EBITDA	1.00x	—	4.25x	(2.43)x
		Recent Transaction	Implied Enterprise Value from Transaction Price ($mm)		$841.00						Recent Transaction	Implied Enterprise Value from Transaction Price ($mm)		$841.00
			N/A	$25.31	—	$28.00	$(26.655)					N/A	$25.31	—	$28.00	$(26.66)
			Offer Price per Share		110.00%							Offer Price per Share		$1.10

Convertible Notes	Convertible Notes	Discounted Cash Flow	Discount Rate	7.50%	—	9.75%	(8.63)%	43,731		Convertible Notes	Discounted Cash Flow	Discount Rate	8.00%	—	10.25%	(9.13)%	43,448
											Option Pricing Model	Volatilty	25.00%	—	60.00%	(47.86)%
Life Settlement		Discounted Cash Flow	Discount Rate		14%			60,619

			Life Expectancy (Months)	22	—	299	71 Months

LLC Interest	LLC Interest	Discounted Cash Flow	Discount Rate	7.50%	—	30.00%	(13.88)%	60,593		LLC Interest	Discounted Cash Flow	Discount Rate	7.75%	—	30.00%	(14.06)%	41,148
			Market Rent (per sqft)	$4.48	—	$32.55	$(14)					Market Rent (per sqft)	$4.91	—	$24.98	$(14.95)
			Capitalization Rate		5.5%							Capitalization Rate		5.375%

LP Interest	LP Interest	Discounted Cash Flow	Discount Rate	6.60%	—	9.20%	(7.75)%	217,024		LP Interest	Discounted Cash Flow	Capitalization Rate	3.90%	—	6.90%	5.51%	195,987
			Capitalization Rate	3.7%	—	6.8%	(5.25)%					Discount Rate	10%	—	20.0%	(15)%

		Recent Transaction	Price per Share		$22.95						Recent Transaction	Price per Share		$22.88

Preferred Shares										Preferred Shares	Recent Transaction	Cost ($mm)		$66.955			66,955

Senior Loan	Senior Loan	Discounted Cash Flow	Discount Rate	12.30%	—	20.00%	(16.15)%	40,515		Senior Loan	Discounted Cash Flow	Discount Rate	12.30%	—	20.00%	(16.15)%	41,867

Total	Total							$	649,198	Total							$	588,529

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10. Life Settlement Portfolio

~~The~~As of June 30, 2023, the Company, ~~owns~~through one of its TRSs, owned 100% of the outstanding equity and debt of Specialty Financial Products, Ltd. ("SFP"), an Ireland domiciled private company with limited liability and a Designated Activity Company. ~~SFP was formed for the purpose of and at~~At the proposal of NexAnnuity Asset Management, L.P. ("NexAnnuity"), an affiliate of the Adviser, SFP was formed for the purpose of entering into acquisitions of U.S. life settlement policies approved by NexAnnuity and funded by the issuance of debt securities, or the Structured Note purchased by the Company. SFP utilizes proceeds from maturing life settlement contracts to repay the Structured Note and to further invest in life settlement contracts. AsOn June 30, 2023, as the Company ~~owns~~owned the outstanding ~~equity~~ordinary shares of and Structured Note issued by SFP, the Company ~~consolidates~~consolidated SFP in its entirety. ~~SFP’s equity and~~On September 1, 2023, the Company, through one of its TRSs, entered into a contribution agreement to transfer the Structured Note ~~are eliminated during~~in SFP and all its rights, title and interests to a related party NexAnnuity Holdings, Inc. ("NHI") and its wholly owned subsidiaries. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NHI. As a result, the Company now holds none of the outstanding equity and debt of SFP, and SFP no longer meets the requirements for consolidation under ASC 810 – Consolidation. The Company will have no continuing involvement with SFP. As such, SFP has been deconsolidated herein as of September 1, 2023. The Class A Preferred Stock in NexAnnuity Holdings, Inc. is accounted for as an investment in an equity security. However, management has elected to account for the investment using the fair value option and ~~the financial assets held by SFP are measured~~presented it as Investments, at fair value.

As The fair value of the Class A Preferred Stock is its original issue price of $1,000 per share due to the recent nature of the transaction. Dividends on the Class A Preferred Stock are cumulative and are payable quarterly on March 31, June 30, ~~2023, the Company’s life settlement portfolio consists~~September 30, and December 31 at an annual rate of 8.0% for years one through seven, 9.5% for years eight through ten, 11.0% for years eleven through thirteen, and 12.0% for years fourteen through sixteen and thereafter.

The transfer of the ~~following (dollars in thousands):~~

Number of Policies Face Value (Death Benefit) Acquisition Cost Premium Cost Estimated Fair Value
Total Range Total Range Total Range Total Range Total
27 $1,500 -$15,000 $ 139,951 $350 - $3,895 $ 46,222 $0 - $380 $ 2,628 $27 - $6,044 $ 60,619

Remaining Life Expectancy (in years) Number Face Value Fair Value
0 - 1 — $ — $ —
1 - 2 2 5,540 4,341
2 - 3 6 32,413 18,413
3 - 4 5 35,311 19,621
4 - 5 2 9,000 3,610
Thereafter 12 57,687 14,634
Total 27 $ 139,951 $ 60,619

~~The premiums~~Structured Note qualified as a sale under ASC 860 – Transfers and Servicing as (1) the transfer legally isolated the transferred assets from the transferor, (2) the transferee has the right to ~~be paid for each of~~pledge or exchange the ~~five succeeding calendar years~~transferred assets and no condition both constrains the transferee’s right to ~~keep~~pledge or exchange the ~~life settlement contracts in force as of June 30, 2023, assuming no maturities occur in that period, are as follows (dollars in thousands):~~

Year Premiums
2023 $ 2,628
2024 5,554
2025 6,238
2026 7,009
2027 7,672

~~During~~assets and provides more than a trivial benefit to the ~~six months ended June 30, 2023,~~transferor, and (3) the ~~Company did~~transferor does not ~~purchase any policies, had one policy mature with an aggregate net death benefit of $3.0 million, and paid $2.5 million in premiums to keep~~maintain effective control over the ~~life settlement contracts in force.~~transferred assets.

11. Shareholders’ Equity

Common Shares

As of ~~June~~September 30, 2023, the Company had ~~37,171,807~~37,682,699 common shares, par value $0.001 per share, issued and outstanding. No510,891.75 shares were issued during the ~~six~~nine months ended ~~June~~September 30, 2023.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company paid a distribution of $0.15 per share on its common shares on March 31, 2023 to shareholders of record on March 15, 2023, ~~and~~ June 30, 2023 to shareholders of record on June 15, ~~2023.~~

~~Table~~2023 and September 29, 2023 to shareholders of ~~Contents~~

record on August 14, 2023. The dividend paid on September 29, 2023 consisted of a combination of cash and shares, with the cash component of the dividend (other than cash paid in lieu of fractional shares) comprising 20% of the dividend, with the balance being paid in the Company's common shares.

Preferred Shares

On January 8, 2021, the Company issued 3,359,593 5.50% Series A Cumulative Preferred Shares, par value $0.001 per share, liquidation preference $25.00 per share ("Series A Preferred Shares") with an aggregate liquidation preference of approximately $84.0 million. The Series A Preferred Shares were issued as part of the consideration for an exchange offer for a portion of the Company’s common shares. The Series A Preferred Shares are callable beginning on December 15, 2023 at a price of $25 per share. The Company may exercise its call option at the Company's discretion. As a result, these are included in permanent equity.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company declared three distributions on its Series A Preferred Shares, each in the amount of $0.34375 per share, which ~~was~~were paid to holders of Series A Preferred Shares on March 31, 2023 to shareholders of record on March 24, 2023, ~~and~~on June 30, 2023 to shareholders of record on June 23, 2023 and on September 30, 2023 to shareholders of record on September 25, 2023.

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Dividends on the Series A Preferred Shares are cumulative from their original issue date at the annual rate of 5.5% of the $25 per share liquidation preference and are payable quarterly on March 31, June 30, September 30, and December 31 of each year, or in each case on the next succeeding business day.

Long Term Incentive Plan

On January 30, 2023, the Company’s shareholders approved a long-term incentive plan (the “2023 LTIP”) and the Company subsequently filed a registration statement on Form S-8 registering 2,545,000 common shares, par value $0.001 per share, which the Company may issue pursuant to the 2023 LTIP. The 2023 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of share options, appreciation rights, restricted shares, restricted share units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common shares or factors that may influence the value of the Company’s common shares, plus cash incentive awards, for the purpose of providing the Company’s trustees, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), and potentially certain nonemployees who perform employee-type functions, incentives and rewards for performance (the "participants").

Restricted Share Units. Under the 2023 LTIP, restricted share units may be granted to the participants and typically vest over a three to five-year period for officers, employees and certain key employees of the Adviser and annually for trustees. The most recent grant of restricted share units to officers, employees and certain key employees of the Adviser will vest over a four-year period. Beginning on the date of grant, restricted share units earn dividends that are payable in cash on the vesting date. On April 4, 2023, pursuant to the 2023 LTIP, the Company granted 37,313 restricted share units to its trustees, on April 4, 2023, the Company granted 566,169 restricted share units to its officers and other employees of

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the Adviser. The following table includes the number of restricted share units granted, vested, forfeited and outstanding as of ~~June~~September 30, 2023:


		2023				2023
		Number of Units	Weighted Average Grant Date Fair Value			Number of Units	Weighted Average Grant Date Fair Value
Outstanding January 1, 2023	Outstanding January 1, 2023	—	$	—	Outstanding January 1, 2023	—	$	—
Granted	Granted	603,482	10.45		Granted	603,482	10.45
Vested	Vested	—	—		Vested	—	—
Forfeited	Forfeited	—	—		Forfeited	—	—
Outstanding June 30, 2023		603,482	$	10.45
Outstanding September 30, 2023					Outstanding September 30, 2023	603,482	$	10.45

The following table contains information regarding the vesting of restricted share units under the 2023 LTIP for the next five calendar years subsequent to ~~June~~September 30, 2023:


		Shares Vesting			Shares Vesting
		April	Total		April	Total
2023	2023	—	—	2023	—	—
2024	2024	178,855	178,855	2024	178,856	178,856
2025	2025	141,542	141,542	2025	141,542	141,542
2026	2026	141,542	141,542	2026	141,542	141,542
2027	2027	141,542	141,542	2027	141,542	141,542
Total	Total	603,482	603,482	Total	603,482	603,482

As of ~~June~~September 30, 2023, the Company had issued no common shares under the 2023 LTIP. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company recognized approximately ~~$0.4~~$0.5 million and ~~$0.4~~$0.9 million, respectively, of equity-based compensation expense related to grants of restricted share units. As of ~~June~~September 30, 2023, the Company had recognized a liability of approximately ~~$0.1~~$0.2 million related to dividends earned on restricted share units that are payable in cash upon vesting.

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12. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of the Company’s common shares outstanding and excludes any unvested restricted share units issued pursuant to the 2023 LTIP.

Diluted earnings (loss) per share is computed by adjusting basic earnings per share for the dilutive effect of the assumed vesting of restricted share units. During periods of net loss, the assumed vesting of restricted share units is anti-dilutive and is not included in the calculation of earnings (loss) per share.

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The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share ~~and share~~ amounts):


			Six Months Ended June 30,		Three Months Ended June 30,				Three Months Ended September 30,		Nine Months Ended September 30,
			2023		2023				2023		2023
Numerator for loss per share:	Numerator for loss per share:						Numerator for loss per share:
Net loss attributable to common shareholders			$	(35,698)	$	(15,022)
Net income (loss) attributable to common shareholders							Net income (loss) attributable to common shareholders		$	(69,113)	$	(104,811)

Denominator for loss per share:	Denominator for loss per share:						Denominator for loss per share:
Weighted average common shares outstanding	Weighted average common shares outstanding		37,172		37,172		Weighted average common shares outstanding		37,187		37,177
Denominator for basic and diluted loss per share	Denominator for basic and diluted loss per share		37,172		37,172		Denominator for basic and diluted loss per share		37,187		37,177
Weighted average unvested restricted share units	Weighted average unvested restricted share units		37		38		Weighted average unvested restricted share units		603		398
Denominator for diluted loss per share	Denominator for diluted loss per share	(1)	37,172		37,172		Denominator for diluted loss per share	(1)	37,187		37,177

Loss per weighted average common share:	Loss per weighted average common share:						Loss per weighted average common share:
Basic	Basic		$	(0.96)	$	(0.40)	Basic		$	(1.86)	$	(2.82)
Diluted	Diluted		$	(0.96)	$	(0.40)	Diluted		$	(1.86)	$	(2.82)

(1) For the ~~six~~three and ~~three~~nine months ended ~~June~~September 30, 2023, excludes approximately ~~583,587~~397,900 and ~~293,406~~603,482 shares, related to assumed vesting of RSUs as the effect would be anti-dilutive.

13. Related Party Transactions

Advisory and Administrative Fees

Prior to the Deregistration Date, the Company was party to an investment advisory agreement (the "Former Advisory Agreement") with an affiliate of the Adviser (the "Former Adviser") pursuant to which the Former Adviser provided investment advisory services to the Company and certain of its subsidiaries. The Company's contractual fee under the Former Advisory Agreement was an annual fee, payable monthly, in an amount equal to 1.00% an amount (the "Former Managed Assets”) equal to the total assets of the Company, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Company’s investment objectives and policies, and/or (iv) any other means. The Former Adviser was permitted to waive a portion of its fees.

Prior to the Deregistration Date, the Company was also party to an administration services agreement (the “Administration Services Agreement”) pursuant to which the Former Adviser previously performed administrative functions for us in connection with our operation as a closed-end investment company. For its services, the Former Adviser received an annual fee, payable monthly, in an amount equal to 0.20% of the average weekly value of the Former Managed Assets.

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In connection with the Business Change and effective on the Deregistration Date, the Company terminated its investment advisory agreement and its administrative services agreement with the Former Adviser and entered into the Advisory Agreement with the Adviser, a subsidiary of NexPoint. The Company also terminated the investment advisory agreements between NexPoint and its wholly owned subsidiaries, ~~NREO~~NexPoint Real Estate Opportunities, LLC ("NREO") and NexPoint Real Estate Capital, LLC, effective on the Deregistration Date. Pursuant to the Advisory Agreement, subject to the overall supervision of our Board, the Adviser manages the day-to-day operations of the Company, and provides investment management services.

As of ~~June~~September 30, 2023, as consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser an annual fee (the "Advisory Fee") of 1.00% of Managed Assets and an annual fee (the "Administrative Fee" and, together with the Advisory Fee, the "Fees") of 0.20% of the Company’s Managed Assets (defined below).

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On April 11, 2023, we entered into an amendment to the Advisory Agreement whereby the monthly installment of the Fees shall be paid in cash unless the Adviser elects, in its sole discretion, to receive all or a portion of the monthly installment of the Fees in common shares of the Company, subject to certain restrictions including that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed five percent of the number of common shares or five percent of the voting power of the Company outstanding prior to the first such issuance (the “Share Cap”) and that in no event shall the common shares issued to the Adviser under the Advisory agreement exceed 6,000,000 common shares; provided, however, that the Share Cap will not apply if the Company’s shareholders have approved issuances in excess of the Share Cap. At the Company’s annual meeting of shareholders, the Company’s shareholders did not approve issuances in excess of the Share Cap. During the three and nine months ended September 30, 2023, we issued 14,588.75 and 14,588.75 common shares, respectively, to the Advisor in payment of the Fees in an amount of $0.16 million and $0.16 million, respectively .

Under the Advisory Agreement, “Managed Assets” means an amount equal to the total assets of the Company, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing to purchase or develop real estate or other investments, borrowing through a credit facility, or the issuance of debt securities), (ii) the issuance of preferred shares or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Company’s investment objectives and policies, and/or (iv) any other means. In the event the Company holds collateralized mortgage-backed securities ("CMBS") where the Company holds the controlling tranche of the securitization and is required to consolidate under GAAP all assets and liabilities of a specific CMBS trust, the consolidated assets and liabilities of the consolidated trust will be netted to calculate the allowable amount to be included as Managed Assets. In addition, in the event the Company consolidates another entity it does not wholly own as a result of owning a controlling interest in such entity or otherwise, Managed Assets will be calculated without giving effect to such consolidation and instead such entity’s assets, leverage, expenses, liabilities and obligations will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of Managed Assets. The Adviser computes Managed Assets as of the end of each fiscal quarter and then computes each installment of the Fees as promptly as possible after the end of the month with respect to which such installment is payable.

Revolving Credit Facility

On May 22, 2023, the Company entered into the NexBank Revolver pursuant to which the Company in the initial principal amount of $20.0 million, with the option for the Company to receive additional disbursements thereunder up to a maximum of $50.0 million, and bears interest at one-month SOFR plus 3.50% and matures on May 20, 2024. The Company drew the $20.0 million on May 22, 2023. The fair value of the revolving credit facility is equal to its carrying value as the Company has the ability to repay the outstanding principal at par value at any time. As of ~~June~~September 30, 2023, the NexBank Revolver had an outstanding balance of $20.0 million.

Reimbursement of Expenses; Expense Cap

The Company is required to pay directly or reimburse the Adviser for all of the documented “operating expenses” (all out-of-pocket expenses of the Adviser in performing services for us, including but not limited to the expenses incurred by the Adviser in connection with any provision by the Adviser of legal, accounting, financial, due diligence, investor relations or other services performed by the Adviser that outside professionals or outside consultants would otherwise perform and our pro rata share of rent, telephone, utilities, office furniture, equipment, machinery or other office, internal and overhead expenses of the Adviser required for our operations) and any and all expenses (other than underwriters'

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discounts) paid or to be paid by us in connection with an offering of our securities, including, without limitation, our legal, accounting, printing, mailing and filing fees and other documented offering expenses (collectively, "Offering Expenses"), paid or incurred by the Adviser or its affiliates in connection with the services it provides to us pursuant to the Advisory Agreement. Direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees payable under the Advisory Agreement, ~~may~~could not exceed 1.5% (the "Expense Cap") of Managed Assets, calculated as of the end of each quarter, for the twelve-month period ~~following~~which followed the Company’s receipt of the Deregistration Order; provided, however, that this limitation ~~will~~did not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, further, in the event the Company ~~consolidates~~consolidated another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses ~~will be~~would have been calculated without giving effect to such consolidation and instead such entity’s expenses ~~will,~~would have been, on a pro rata basis consistent with the Company’s

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percentage ownership, be considered those of the Company for purposes of calculation of expenses. On occasion, the Adviser may waive additional fees to the extent assets are invested in certain affiliated investments. The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the future. The Expense Cap expired on June 30, 2023.

The Advisory Agreement has an initial term of three years that will expire on July 1, 2025, and successive additional one-year terms thereafter unless earlier terminated. We have the right to terminate the Advisory Agreement on 30 days’ written notice upon the occurrence of a cause event (as defined in the Advisory Agreement). The Advisory Agreement can be terminated by us or the Adviser without cause upon the expiration of the then-current term with at least 180 days’ written notice to the other party prior to the expiration of ssuch term. The Adviser may also terminate the agreement with 30 days’ written notice if we have materially breached the agreement and such breach has continued for 30 days before we are given such notice. In addition, the Advisory Agreement will automatically terminate in the event of Advisers Act Assignment (as defined in the Advisory Agreement) unless we provide written consent. A termination fee will be payable to the Adviser by us upon termination of the Advisory Agreement for any reason, including non-renewal, other than a termination by us upon the occurrence of a cause event or due to an Advisers Act Assignment. The termination fee will be equal to three times the Fees earned by the Adviser during the twelve month period immediately preceding the most recently completed calendar quarter prior to the effective termination date; provided, however, if the Advisory Agreement is terminated prior to the one year anniversary of the date of the Advisory Agreement, the Fees earned during such period will be annualized for purposes of calculating the Fees.

For the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company incurred Administrative Fees and Advisory Fees of ~~$1.7~~$3.5 million and ~~$5.2~~$10.7 million, which excludes ~~$1.6 million~~$0 and $2.0 million, respectively, in fees that were waived to comply with the Expense Cap. Should the Fees and expenses and any other items subject to the Expense Cap behave been less than the 1.5% limit for the twelve-month period subsequent to the Deregistration Date, some or all of the deferred expenses could be recouped by the Adviser up to the Expense Cap. No Advisory Fees were recouped by the Adviser as of ~~June~~September 30, 2023.

Guaranties of NexPoint Storage Partners, Inc. Debt

On September 14, 2022, the Company entered into guaranties (the “BS Guaranties”) for the benefit of JPMorgan Chase Bank, National Association (“JPM”) and any additional or subsequent lenders from time to time (collectively, “BS Lender”) under a loan agreement (the "BS Loan Agreement"), pursuant to which the Company guaranteed certain obligations of the borrowers (“BS Borrower”) under the BS Loan Agreement. The Company, through its ownership in NSP, owns an indirect interest in BS Borrower and entered into the BS Guaranties as a condition of BS Lender lending to BS Borrower under the BS Loan Agreement. Pursuant to the BS Guaranties, the Company guaranteed certain carrying obligations, including interest payments, of BS Borrower and certain recourse obligations of BS Borrower pertaining to exculpation or indemnification of BS Lender. The BS Guaranties also provide that the Company may be required to repay principal amounts upon the occurrence of certain events, including certain action or inaction by BS Borrower, but does not provide for a full guarantee of repayment in all circumstances. The BS Loan Agreement provides for a single initial advance of the loan in the amount of $221.8 million to BS Borrower on the closing date, and provides BS Borrower the right to request additional advances in connection with subsequently acquired properties. Amounts outstanding under the BS Loan Agreement are due and payable on ~~September~~March 9, ~~2023~~2024 which date may, at the option of BS Borrower, be extended for ~~two successive one-year terms~~an additional six months upon the satisfaction of certain terms and conditions. Borrowings outstanding under the BS Loan

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Agreement are secured by mortgages on real property owned by one or more of the borrowers comprising BS Borrower and bear interest at the one-month SOFR, subject to a floor of 0.5%, plus an applicable spread of approximately 4.0% with respect to approximately $184.9 million of initial principal thereunder and approximately 5.4% with respect to approximately $36.9 million of initial principal thereunder.

On December 8, 2022 and in connection with a restructuring of NSP, the Company, together with NREF, Highland Opportunities and Income Fund ("~~HIF"~~HFRO") and NexPoint Real Estate Strategies Fund (collectively, the "Co-Guarantors"), as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space Storage, LP ("Extra Space") pursuant to which the Company and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $64.2 million issued to Extra Space. The guaranties by the Company and the Co-Guarantors are capped at $97.6 million, which cap amount will be reduced as the guaranteed obligations of NSP are paid. Each of the Company and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. ~~The~~On February 15, 2023, NSP paid down approximately $15.0 million of these promissory notes, resulting in an aggregate principal amount of approximately $49.2 million. As of September 30, 2023, the maximum liability of the Company under the guaranties iswas approximately ~~$83.8~~$71.0 million. The Company has not recorded a contingent liability due to NSP being current on all debt and preferred dividend payments and in compliance

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with all debt compliance provisions of the Sponsor Guaranty Agreement. As of ~~June~~September 30, 2023, the Company owns approximately 53.0% of the total outstanding shares of common stock of NSP.

Separately, on September 14, 2022, the Company entered into a Guaranty Agreement (Recourse Obligations), dated September 14, 2022 (the “CMBS Guaranty”) for the benefit of JPM and any additional or subsequent lenders from time to time (collectively, the “CMBS Lender”) under a loan agreement (the "CMBS Loan Agreement"), by and among the borrowers thereunder (collectively, “CMBS Borrower”) and the CMBS Lender. The Company, through its ownership in NSP, owns an indirect interest in CMBS Borrower and entered into the CMBS Guaranty as a condition of CMBS Lender lending to CMBS Borrower under the CMBS Loan Agreement. Pursuant to the CMBS Guaranty, the Company guaranteed certain recourse obligations of CMBS Borrower pertaining to exculpation or indemnification of CMBS Lender. The CMBS Guaranty also provides that the Company may be required to repay principal amounts upon the occurrence of certain events, including certain action or inaction by CMBS Borrower, but does not provide for a full guarantee of repayment in all circumstances. The CMBS Loan Agreement provides for a loan of $356.5 million to CMBS Borrower. Amounts outstanding under the CMBS Loan Agreement are due and payable on September 9, 2024 which date may, at the option of CMBS Borrower, be extended for three successive one-year terms upon the satisfaction of certain terms and conditions. Borrowings outstanding under the CMBS Loan Agreement are secured by mortgages on real property owned by one or more of the borrowers comprising CMBS Borrower and bear interest at one-month SOFR plus a spread of approximately 3.6%, which will increase by 0.1% upon a second extension of the loan maturity and by an additional approximately 0.15% upon a third extension of the loan maturity.

Subsidiary Investment Management Agreement

SFP is a party to a management agreement (the "SFP IMA") with NexAnnuity pursuant to which NexAnnuity provides investment management services to SFP. Mr. Dondero serves as President of NexAnnuity, which is indirectly owned by a trust of which Mr. Dondero is the primary beneficiary. As discussed in Note 10, the Company disposed of its interest in SFP on September 1, 2023. Prior to its disposition, the Company paid $0.1 million in management fees to NexAnnuity.

In exchange for its services, the SFP IMA provides that NexAnnuity will receive a management fee (the "SFP Management Fee") paid monthly in an amount equal to 1.0% of the average weekly value of an amount equal to the total assets of SFP, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the investment objective, investment guidelines and policies under the SFP IMA, and/or (iv) any other means, plus any value added tax or any other applicable tax, if any, thereon. NexAnnuity may waive all or a portion of the SFP Management Fee.

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Other Related Party Transactions

The Company has in the past, and may in the future, utilize the services of affiliated parties. The Company holds multiple operating accounts at NexBank an affiliate of the Adviser through common beneficial ownership. The Company’s operating properties, other than undeveloped land, are managed by NexVest Realty Advisors, LLC ("NexVest"), an affiliate of the Adviser. For the ~~six~~nine months ended ~~June~~September 30, 2023, the Company through its subsidiaries has paid approximately ~~$0.3~~$0.5 million in property management fees to NexVest. The property management agreement with NexVest for the retail property in Lubbock, Texas is dated January 1, 2014 and had a fixed fee of $750 per month. Effective January 1, 2023, the property management agreement was amended and the property management fee was increased to $1,200 per month. The property management agreement with NexVest for Cityplace Tower is dated August 15, 2018, and the management fee is calculated on 3% of gross revenues, with a minimum fee of $20,000 per month. The property management agreement with NexVest for the White Rock Center is dated June 1, 2013, and the management fee is calculated on 4% of gross receipts, payable monthly.

The Company is a limited guarantor and an indemnitor on one of ~~NHT's~~NexPoint Hospitality Trust's ("NHTs") loans with an aggregate principal amount of $77.4 million as of ~~June~~September 30, 2023. NHT is a publicly traded hospitality REIT that is managed by an affiliate of the Adviser. The Company owns 45.4% of the outstanding common stock of NHT. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. The Company has not recorded a contingent liability as NHT is current on all debt payments and in compliance with all debt compliance provisions.

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On March 31, 2022, the Company, through an unconsolidated subsidiary, borrowed approximately $13.5 million from NREF, an entity advised by an affiliate of the Adviser, to finance its acquisition of a 77.0% interest in Tivoli North Property. The bridge note bore interest at an annual rate equal to the WSJ Prime Rate plus 1.5% and had a maturity date of October 1, 2022. The Company refinanced this bridge note with PNC Bank, N.A ("PNC Bank") on August 8, 2022. The new loan had a principal amount of $13.5 million ~~matures on August 7, 2023,~~ and bears interest at an annual rate of daily simple SOFR plus 3.5%. Proceeds from the note with PNC Bank were used to repay in full the financing provided by NREF on August 9, 2022. On August 8, 2023, the Company elected to extend the maturity date of this loan to January 8, 2024.

On December 8, 2022, the Company, through NREO, entered into a Contribution Agreement pursuant to which NREO contributed all of its interests in the ~~SAFStor Ventures~~joint ventures (the "SAFStor Ventures") with SAFStor NREA GP – I, LLC, SAFStor NREA GP – II, LLC and NREA GP – III, LLC to ~~the NSP OC~~NexPoint Storage Partners Operating Company, LLC (the "NSP OC") in exchange for approximately 47,064 newly created Class B Units of the NSP OC, representing 14.8% of the outstanding combined classes of common units of the NSP OC (the "NSP OC Common ~~Units~~Units") immediately after NREO’s acquisition of Class B Units. The NSP OC is the operating company of NSP, of which the Company owns approximately 86,369 shares, or 53.0%, of the outstanding common stock as of ~~June~~September 30, 2023. In connection with the foregoing, the NSP OC acquired all of the other interests in the SAFStor Ventures from affiliates of the Adviser following which they were wholly owned by a subsidiary of the NSP OC. The SAFStor Ventures are invested, through subsidiaries, in various self-storage real estate development projects primarily located on the East Coast of the United States. As of ~~June~~September 30, 2023, the Company owns approximately 47,064 units, or 29.7%, of the outstanding NSP OC Common Units.

On December 23, 2022, the Company, through NREO, redeemed 2,100,000 ~~NREF~~common units of limited partnership (the "NREF OP ~~Units~~Units") of NexPoint Real Estate Finance Operating Partnership, L.P. (the "NREF OP") for 2,100,000 shares of common stock of NREF. The NREF OP is the operating partnership of NREF, a publicly traded mortgage REIT managed by an affiliate of the Adviser.

~~Table~~On September 1, 2023, the Company, through one of ~~Contents~~

its wholly owned TRSs, entered into a contribution agreement to transfer the Structured Note in SFP and all its rights, title and interests to related party NexAnnuity Holdings, Inc. and its wholly owned subsidiaries. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc. On September 28, 2023, the Company, through one of its wholly owned TRSs, redeemed 2,000 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc.

Related Party Investments

The Company, from time to time, may invest in entities managed by affiliates of the Adviser. For the ~~six~~nine months ended and as of ~~June~~September 30, 2023, the Company has the following investments in entities managed or advised by, or directly or indirectly owned by entities managed or advised by, affiliates of the Adviser (in thousands).

Related Party Investment Fair
Value Change in Unrealized
Gain/(Loss) Realized
Gain/(Loss) Equity in income (loss) Interest and
Dividends Total Income
SFR WLIF III, LLC LLC Units $ 7,306 $ — $ — $ 421 $ — $ 421
NexPoint Residential Trust, Inc. Common Stock 4,075 175 — — 75 250
NexPoint Hospitality Trust Common Stock 16,964 (10,721) — — — (10,721)
NexPoint Hospitality Trust Convertible Notes 22,531 1,052 — — 319 1,371
NexPoint Storage Partners, Inc. Common Stock 105,005 1,311 — — — 1,311
NexPoint Storage Partners Operating Company, LLC LLC Units 57,220 714 — — — 714
NexPoint SFR Operating Partnership, L.P. Partnership Units 49,720 (4,361) — — 1,203 (3,158)
NexPoint SFR Operating Partnership, L.P. Convertible Notes 21,200 393 — — 998 1,391
Claymore Holdings, LLC LLC Units — — — — — —
Allenby, LLC LLC Units — — — — — —
NexPoint Real Estate Finance Operating Partnership, L.P. Partnership Units 75,909 (1,461) — — 5,843 4,382
NexPoint Real Estate Finance, Inc. Common Stock 32,739 (630) — — — 2,877 — 2,247
VineBrook Homes Operating Partnership, L.P. Partnership Units 167,305 (3,784) — — — 2,866 — (918)
Total $ 559,974 $ (17,312) $ — $ 421 $ 14,181 $ (2,710)

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Related Party	Investment	Fair Value/Carrying Value		Change in Unrealized Gain/(Loss)		Realized Gain/(Loss)		Equity in income (loss)		Interest and Dividends			Total Income
NexPoint Hospitality Trust	Common Stock	$	9,500	$	(18,185)	$	—	$	—	$	—		$	(18,185)
NexPoint Real Estate Finance, Inc.	Common Stock	34,356		987		—		—		4,316			5,303
NexPoint Storage Partners, Inc.	Common Stock	69,484		(34,210)		—		—		—			(34,210)
NexPoint Residential Trust, Inc.	Common Stock	2,910		(1,027)		—		—		113			(914)
NexPoint SFR Operating Partnership, L.P.	Convertible Notes	21,275		468		—		—		1,411			1,879
NexPoint Hospitality Trust	Convertible Notes	22,173		694		—		—		479			1,173
NexPoint Storage Partners Operating Company, LLC	LLC Units	37,863		(18,642)		—		—		—			(18,642)
SFR WLIF III, LLC	LLC Units	7,200		—		—		498		—			498
Claymore Holdings, LLC	LLC Units	—		—		—		—		—			—
Allenby, LLC	LLC Units	—		—		—		—		—			—
VineBrook Homes Operating Partnership, L.P.	Partnership Units	146,419		(26,108)		—		—		2,866			(23,242)
NexPoint Real Estate Finance Operating Partnership, L.P.	Partnership Units	79,658		2,288		—		—		8,764		—	11,052
NexPoint SFR Operating Partnership, L.P.	Partnership Units	49,568		(4,513)		—		—		1,203		—	(3,310)
NexAnnuity Holdings, Inc.	Preferred Shares	66,955		—		—		—		455		—	455
Total		$	547,361	$	(98,248)	$	—	$	498	$	19,607		$	(78,143)

On June 13, 2023, ~~HIF,~~HFRO, a fund managed by an affiliate of the Adviser, loaned $11 million to ~~the~~NexPoint SFR OPOperating Partnership, L.P. (the "SFR OP") in exchange for $11 million of 7.50% convertible notes of the SFR OP (the "SFR OP Convertible ~~Notes.~~Notes"). The SFR OP Convertible Notes bear interest at 7.50%, are interest only during the term of the SFR OP Convertible Note and mature on June 30, 2027. The SFR OP is a subsidiary of NexPoint Homes Trust, Inc. ("NXHT"), a single-family rental REIT managed by an affiliate of the Adviser. From August 1, 2022 through March 31,

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2027, the SFR OP Convertible Notes are convertible into SFR OP Units at the election of the holder at the then-current net asset value, subject to certain required approvals and limitations, including the SFR OP’s right to prohibit conversion if, among other things, conversion would negatively impact NXHT’s REIT status or cause NXHT to own less than 50.0% of the SFR OP.

14. Commitments and Contingencies

Commitments

On December 8, 2022 and in connection with a restructuring of NSP, the Company, together with the Co-Guarantors, as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space pursuant to which the Company and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $64.2 million issued to Extra Space. The guaranties by the Company and the Co-Guarantors are capped at $97.6 million, which cap amount will be reduced as the guaranteed obligations of NSP are paid. Each of the Company and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. ~~The~~On February 15, 2023, NSP paid down approximately $15.0 million of these promissory notes, resulting in an aggregate principal amount of approximately $49.2 million. As of September 30, 2023, the maximum liability of the Company under the guaranties iswas approximately ~~$83.8~~$71.0 million. The Company has not recorded a contingent liability due to NSP being current on all debt and preferred dividend payments and in compliance with all debt compliance provisions of the Sponsor Guaranty Agreement. As of ~~June~~September 30, 2023, the Company owns approximately 53.0% of the total outstanding shares of common stock of NSP. See Note 13 for additional information.

The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $77.4 million outstanding, as of ~~June~~September 30, 2023. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. The Company has not recorded a contingent liability as NHT is current on all debt payments and in compliance with all debt compliance provisions.

Contingencies

In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.

Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of operations. As of ~~June~~September 30, 2023, the Company was not aware of any environmental liabilities. There can be no assurance that material environmental liabilities do not exist.

Claymore and Allenby are engaged in ongoing litigation that could result in a possible gain contingency to the Company. The probability, timing, and potential amount of recovery, if any, are unknown.

15. Operating Leases

Lessor Accounting

We generate the majority of our revenue by leasing our operating properties to customers under operating lease agreements. The manner in which we recognize these transactions in our financial statements is described in the Income Recognition section of Note 2 to these consolidated financial statements.

The following table summarizes the future minimum lease payments to the Company as the lessor under the operating lease obligations at ~~June~~September 30, 2023 (in thousands). These amounts do not reflect future rental revenues from renewal or replacement of existing leases. Reimbursements of operating expenses and variable rent increases are excluded from the table below.

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Year:	Year:	Operating Leases	Year:	Operating Leases
2023	2023	$6,069	2023	$2,939
2024	2024	9,440	2024	9,536
2025	2025	9,130	2025	9,227
2026	2026	7,815	2026	7,911
2027	2027	7,001	2027	7,097
Thereafter	Thereafter	19,601	Thereafter	26,222
Total	Total	$59,056	Total	$62,932

The following table lists the tenants where the rental revenue from the tenants during the period presented represented 10% or more of total rental income in the Company’s consolidated statements of operations (in thousands):


						For the ~~Six~~Nine Months Ended ~~June~~September 30,
Tenant						Rental Income
Hudson Advisors LLC						$~~1,424~~2,135

16. Subsequent Events

Dividends Declared

On ~~July 24,~~November 6, 2023, the Board approved a quarterly dividend of $0.15 per common share, payable on ~~September~~December 29, 2023 to shareholders of record on ~~August 15,~~November 17, 2023. The dividend on the Company’s common shares ~~consist~~consists of a combination of cash and shares, with the cash component of the dividend (other than cash paid in lieu of fractional shares) not to exceed 20% in the aggregate, with the balance being paid in the Company’s common shares. Also on ~~July 24,~~November 6, 2023, the Board approved a quarterly dividend of $0.34375 per Series A Preferred Share, payable on ~~October~~January 2, ~~2023~~2024 to shareholders of record on ~~September 25,~~December 22, 2023.

Through June 30, 2023, the Company has not generated sufficient cash flow from operations, as disclosed on the Consolidated Statement of Cash Flows, to cover the dividend authorized for payment on September 29, 2023. The purpose of paying the dividend partially in shares and partially in cash is to alleviate the cash outflow to the Company. The Company may revert to paying the dividend in cash at some point in the future when cash flow from operations supports such a cash dividend. However, there can be no assurance that cash flow from operations will be able to support a cash dividend in the future.

Issuance of Common Shares to Adviser

On ~~August 1,~~October 25, 2023, the Company issued ~~14,588.75~~131,031.24 common shares to the Adviser as payment of a portion of the monthly Advisory Fees pursuant to the April 11, 2023 amendment to Advisory Agreement.

Redemption of Series A Preferred Stock in NexAnnuity Holdings, Inc.

On October 24, 2023, the Company, through one of its wholly owned TRSs, redeemed 1,000 shares of Class A Preferred Stock in NHI for $1.0 million .

Credit Facility Amendment

On October 20, 2023, Raymond James Bank, N.A. agreed to amend the terms of the Credit Facility, which, among other things, extended the maturity date to October 6, 2025 and increased the credit limit to $20 million. On October 23, 2023, the Company drew $7.0 million of the available balance.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes included ~~herein.~~herein and with our annual report on Form 10-K for the year ended December 31, 2022 (our "Annual Report"), filed with the Securities and Exchange Commission (the "SEC") on March 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this quarterly report. See “Cautionary Statement Regarding Forward-Looking Statements” in this ~~report.~~report and "Risk Factors" in Part I, Item 1A, "Risk Factors" of our Annual Report.

Overview

As of ~~June~~September 30, 2023, our Portfolio consisted primarily of debt and equity investments in the single-family rental, self-storage, office, hospitality, life science and multifamily sectors. Substantially all of our business is conducted through the OP. The OP GP is the sole general partner of the OP and is owned 100% by the Company. As of ~~June~~September 30, 2023, there were 2,000 OP Units outstanding, of which 100% were owned by us.

On July 1, 2022, or the Deregistration Date, the SEC issued the Deregistration Order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act. The issuance of the Deregistration Order enabled the Company to proceed with full implementation the Business Change. As a result of the Business Change, we have not provided a comparison of our financial statements to prior periods in which we were operating as a registered investment company because it would not be useful to our shareholders.

As a diversified REIT, the Company’s primary investment objective is to provide both current income and capital appreciation. The Company seeks to achieve this objective through the Business Change. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities. We are externally managed by the Adviser through the Advisory Agreement, by and among the Company and the Adviser. The Advisory Agreement was dated July 1, 2022, and amended on October 25, 2022 and April 11, 2023, for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated. The Adviser is wholly owned by our Sponsor.

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our shareholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through one or more TRS entities and are subject to applicable federal, state, and local income and margin taxes.

On October 15, 2021, Marc S. Kirschner, as litigation trustee of a litigation subtrust formed in connection with the bankruptcy proceedings of Highland, a former affiliate of our Sponsor, filed a lawsuit (the “Bankruptcy Trust Lawsuit”) against various persons and entities, including our Sponsor and James Dondero. In addition, on February 8, 2023, UBS Securities and its affiliate (collectively “UBS”) filed a lawsuit in the Supreme Court of the State of New York, County of New York against Mr. Dondero and a number of entities currently or previously affiliated with Mr. Dondero, seeking to collect on $1.3 billion in judgments UBS obtained against entities that were managed indirectly by Highland (the “UBS Lawsuit”). Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets.

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Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit and Mr. Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

On February 22, 2023, as previously disclosed, the Board formed an independent special committee to oversee a review of the potential impact to the Company of the UBS Lawsuit and the Bankruptcy Trust Lawsuit. The special committee retained Reichman Jorgensen Lehman Feldberg LLP (“Reichman Jorgensen”) as independent legal counsel to

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advise the special committee on the review. Reichman Jorgensen has reported to the special committee that they have substantially completed their review and found no evidence that the Company engaged in any conduct that would expose it to liability from the UBS Lawsuit or the Bankruptcy Trust Lawsuit. On June 13, 2023, the special committee delivered these findings to the Board. Following the review of the special committee, we reaffirm our expectation that neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

Macroeconomic trends, including increases in inflation and rising interest rates, may adversely impact our business, financial condition and results of operations. Inflation in the United States has recently accelerated and is currently expected to continue at an elevated level in the near-term. Rising inflation could have an adverse impact on our operating expenses and our floating rate mortgages and credit facilities, as these costs could increase at a rate higher than our rental and other revenue. There is no guarantee we will be able to mitigate the impact of rising inflation. The Federal Reserve has raised interest rates to combat inflation and restore price stability. In addition, to the extent our exposure to increases in interest rates on any of our debt is not eliminated through interest rate swaps and interest rate protection agreements, such increases will result in higher debt service costs which will adversely affect our cash flows. We cannot make assurances that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings. Such future constraints could increase our borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.

Components of Our Revenues and Expenses

Revenues

Rental income. Our rental income is primarily attributable to the rental revenue from our investment in Cityplace Tower, a 42-story, 1.35 million-square-foot, trophy office building acquired in 2018 as well as rental income from two retail properties. Our rental income also includes utility reimbursements, late fees, common area maintenance reimbursements, and other rental fees charged to tenants.

Interest income. Interest income includes interest earned from our debt investments.

Dividend income. Dividend income includes dividends from our equity investments.

Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, parking fees, and other miscellaneous fees charged to tenants and income items.

Expenses

Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs of property owned directly or indirectly by us.

Property management fees. Property management fees include fees paid to NexVest, our property manager, for managing each property directly or indirectly owned by us (see Note 13 to our unaudited consolidated financial statements).

Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property owned directly or indirectly by us. Insurance includes the cost of commercial, general liability, and other needed insurance for each property owned directly or indirectly by us.

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Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 13 to our unaudited consolidated financial statements).

Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, general office supplies, and other administrative related costs of each property owned directly or indirectly by us.

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Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, listing fees, board of trustee fees, investor relations costs and payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the Advisory Fees and Administrative Fees paid to our Adviser will not exceed the Expense Cap for the 12 months subsequent to the Deregistration Date, calculated in accordance with the Advisory Agreement. The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence, and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, such expenses are considered permanently waived and become non-recoupable in the future.

Conversion expense - Conversion expenses include the costs of the Business Change in conjunction with the Deregistration Order, which primarily include legal fees and other fees incurred in preparation for or as a direct result of the conversion. These conversion expenses are included in the consolidated statement of operations and comprehensive income (loss) as conversion expenses.

Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our real properties and amortization of acquired in-place leases on property owned directly or indirectly by us.

Other Income and Expense

Interest Expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred financing costs, if any, and the related impact of interest rate derivatives, if any, used to manage our interest rate risk.

Equity in Earnings (Losses) of Unconsolidated Ventures. Equity in earnings (losses) of unconsolidated ventures represents the change in our basis in equity method investments resulting from our share of the investments’ income and expenses. Profit and loss from equity method investments for which we’ve elected the fair value option are classified in divided income, change in unrealized gains and realized gains as applicable.

Income Tax Expense. Income tax expense is primarily derived from taxable gains from asset sales and other income earned from investments held in our TRSs.

Unrealized Gain (Loss) on Investments. Unrealized gains and losses represent changes in fair value for equity method investments, CLO equity investments, bonds, common stock, convertible notes, LLC interests, LP interests, rights and warrants, and senior loans for which the fair value option has been elected.

Realized Gain (Loss) on Investments. The Company recognizes the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized gains or losses, respectively. The Company reverses cumulative, unrealized gains or losses previously reported in its Consolidated Statements of Operations on both the Successor and Predecessor basis with respect to the investment sold at the time of the sale.

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Real Estate Investments Statistics

As of ~~June~~September 30, 2023, the Company was invested in two retail properties and one office and hospitality property (excluding investments in undeveloped land), as listed below:


						Average Effective Monthly Occupied Rent Per Square Foot (1) as of		% Occupied (2) as of							Average Effective Monthly Occupied Rent Per Square Foot (1) as of		% Occupied (2) as of
Property Name	Property Name	Rentable Square Footage (in thousands)	Property Type		Date Acquired	June 30, 2023		June 30, 2023		Property Name	Rentable Square Footage (in thousands)	Property Type		Date Acquired	September 30, 2023		September 30, 2023
White Rock Center	White Rock Center	82,793	Retail		6/13/2013	$	1.50	66.5	%	White Rock Center	82,793	Retail		6/13/2013	$	1.51	66.9	%
5916 W Loop 289	5916 W Loop 289	30,140	Retail		7/23/2013	$	0.40	100.0	%	5916 W Loop 289	30,140	Retail		7/23/2013	$	0.40	100.0	%
Cityplace Tower	Cityplace Tower	1,353,087	Office & Hospitality	(3)	8/15/2018	$	2.14	62.9	%	Cityplace Tower	1,353,087	Office & Hospitality	(3)	8/15/2018	$	2.13	60.2	%
		1,466,020									1,466,020

(1)Average effective monthly occupied rent per square foot is equal to the average of the contractual rent for commenced leases as of ~~June~~September 30, 2023, minus any tenant concessions over the term of the lease, divided by the occupied square footage of commenced leases as of ~~June~~September 30, 2023.

(2)Percent occupied is calculated as the rentable square footage occupied as of ~~June~~September 30, 2023, divided by the total rentable square footage, expressed as a percentage.

(3)Cityplace is currently under development and the Company is converting part of the property into a hotel, which was still under construction as of ~~June~~September 30, 2023.

Results of Operations for the Three Months Ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and Six~~Nine Months Ended ~~June~~September 30, 2023

The following table sets forth a summary of our operating results for the three months ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and six~~nine months ended ~~June~~September 30, 2023 (in thousands):


		For the Three Months Ended June 30,		For the Three Months Ended March 31,		For the Six Months Ended June 30			For the Three Months Ended September 30,		For the Three Months Ended June 30,		For the Nine Months Ended September 30
		2023		2023		2023			2023		2023		2023
Total revenues	Total revenues	$13,880		$14,866		$28,746		Total revenues	$12,364		$13,880		$41,110
Total expenses	Total expenses	(13,853)		(12,538)		(26,391)		Total expenses	(12,885)		(13,853)		(39,276)
Operating income	Operating income	27		2,328		2,355		Operating income	(521)		27		1,834
Interest expense	Interest expense	(3,762)		(3,462)		(7,224)		Interest expense	(4,173)		(3,762)		(11,397)
Equity in income (losses) of unconsolidated ventures	Equity in income (losses) of unconsolidated ventures	422		(76)		346		Equity in income (losses) of unconsolidated ventures	(369)		422		(23)
Income tax expense	Income tax expense	(308)		(806)		(1,114)		Income tax expense	(330)		(308)		(1,444)
Change in unrealized losses		(9,332)		(18,640)		(27,972)
Change in unrealized gains (losses)								Change in unrealized gains (losses)	(61,626)		(9,332)		(89,598)
Realized gains (losses)	Realized gains (losses)	(914)		1,135		221		Realized gains (losses)	(939)		(914)		(718)
Net loss		(13,867)		(19,521)		(33,388)
Net loss attributable to preferred shareholders		(1,155)		(1,155)		(2,310)
Net loss attributable to common shareholders		$	(15,022)	$	(20,676)	$	(35,698)
Net income (loss)								Net income (loss)	(67,958)		(13,867)		(101,346)
Net income (loss) attributable to preferred shareholders								Net income (loss) attributable to preferred shareholders	(1,155)		(1,155)		(3,465)
Net income (loss) attributable to common shareholders								Net income (loss) attributable to common shareholders	$	(69,113)	$	(15,022)	$	(104,811)

The change in our net ~~loss~~income (loss) for the three months ended ~~June~~September 30, 2023 and ~~March 31,~~June 30, 2023 and the net loss for the ~~six~~nine months ended ~~June~~September 30, 2023 primarily relates to mark-to-market losses on our investments accounted for at fair value partially offset by interest and dividends.

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Revenues

Rental income. Rental income was $5.4 million and ~~$4.7~~$5.4 million for the three months ended September 30, 2023 and June 30, 2023, and $15.5 million for the nine months ended September 30, 2023. There was no change between the three months ended June 30, 2023 and ~~March 31, 2023, and $10.1 million for the six months ended June 30, 2023. There was an increase of $0.7 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, ~~2023, which was primarily due to a decrease in lease cancellations and buy outs.~~2023. Rental income primarily consists of lease revenue from our investment in Cityplace Tower.

Interest and dividends. Interest and dividends totaled ~~$8.4~~$6.9 million and approximately ~~$10.2~~$8.4 million for the three months ended September 30, 2023 and June 30, 2023, and $25.4 million for the nine months ended September 30, 2023. There was a decrease of $1.6 million between the three months ended June 30, 2023, and ~~March 31, 2023, and $18.6 million for the six months ended June 30, 2023. There was a decrease of $1.7 million between~~ the three months ended ~~March 31, 2023, and the three months ended June~~September 30, 2023, which was primarily due to a decrease in ~~CLO proceeds.~~equity dividends.

Other income. Other income was approximately $97.0 thousand and $22.0 thousand for the three months ended September 30, 2023 and ~~$9.0~~June 30, 2023, and $128.0 thousand for the nine months ended September 30, 2023. There was an increase of $75.0 thousand between the three months ended June 30, 2023 and ~~March 31, 2023, and $31.0 thousand for the six months ended June 30, 2023. There was an increase of $13.0 thousand between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily due to an increase in ~~parking fees.~~asset management fees on a property.

Expenses

Property operating expenses. Property operating expenses were $1.5 million and $2.5 million for the three months ended September 30, 2023 and ~~$1.5~~June 30, 2023, and $5.6 million for the nine months ended September 30, 2023. There was a decrease of $1.0 million between the three months ended June 30, 2023 and ~~March 31, 2023, and $4.0 million for the six months ended June 30, 2023. There was an increase of $1.0 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily due to ~~an increase~~a decrease in one-time repair and maintenance expenses. Property operating expenses consist primarily of expenses from our investment in Cityplace Tower.

Property management fees. Property management fees were $191.0 thousand and ~~$171.0~~$191.0 thousand for the three months ended September 30, 2023 and June 30, 2023, and $553.0 thousand nine months ended September 30, 2023. There was no change between the three months ended June 30, 2023 and ~~March 31, 2023, and $362.0 thousand six months ended June 30, 2023. There was a decrease of approximately $20.0 thousand between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, ~~2023, which was primarily due to an increase in property management fees at White Rock Center.~~2023. Property management fees are primarily based on gross revenues derived primarily from our investment in Cityplace Tower.

Real estate taxes and insurance. Real estate taxes and insurance costs were $1.4 million and $1.3 million for the three months ended September 30, 2023 and ~~$1.4~~June 30, 2023, and $4.1 million for the nine months ended September 30, 2023. There was an increase of $20.0 thousand between the three months ended June 30, 2023 and ~~March 31, 2023, and $2.7 million for the six months ended June 30, 2023. There was a decrease of $17.0 thousand between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily due to an ~~decrease~~increase in property taxes at Cityplace Tower. Real estate taxes and insurance expenses consist primarily of expenses from our investment in Cityplace Tower.

Advisory and administrative fees. For the three months ended ~~June~~September 30, 2023 and ~~March 31,~~June 30, 2023, the Company incurred Administrative Fees and Advisory Fees of ~~$1.6~~$3.5 million and ~~$3.6~~$3.7 million, which excludes ~~$1.6 million~~$0 and ~~$0.4~~$2.0 million in fees that were waived to comply with the Expense Cap, and ~~$5.2~~$10.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023, which excludes ~~$2.0~~$(2.0) million in fees that were deferred to comply with the Expense Cap. There was ~~a decrease~~an increase of ~~$1.9~~approximately $1.8 million between the three months ended ~~March 31,~~June 30, 2023 and the three months ended ~~June~~September 30, 2023. The decrease in periods was primarily due to ~~an increase in fees that were required to be deferred to comply with~~the expiration of the Expense ~~Cap.~~Cap on June 30, 2023. The fees that were deferred to comply with the Expense Cap have been waived and cannot be recouped by the Adviser.

Property general and administrative expenses. Property general and administrative expenses were $0.8 million and $1.0 million for the three months ended September 30, 2023 and ~~$0.7~~June 30, 2023, and $2.6 million for the nine months ended September 30, 2023. There was a decrease of approximately $0.2 million between the three months ended June 30, 2023 and ~~March 31, 2023 and approximately $1.8 million for the six months ended June 30, 2023. There was an increase of $0.3 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily due to a ~~write-off of a related party payable at December 31, 2022.~~decrease in professional fees. Property general and administrative expenses consist primarily of expenses from our investment in Cityplace Tower.

Corporate general and administrative expenses. Corporate general and administrative expenses were $1.7 million and $2.3 million for the three months ended September 30, 2023 and ~~$1.5~~June 30, 2023, and approximately $5.4 million for the nine months ended September 30, 2023. There was a decrease of approximately $0.6 million between the three months ended June 30, 2023 and ~~March 31, 2023, and approximately $3.7 million for the six months ended June 30, 2023. There was an increase of $0.8 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily driven by ~~stock compensation expense of $0.4 million.~~a decrease in legal fees, tax prep fees and other professional fees.

Conversion expenses. Conversion expenses were $0.0 million and $1.3 million for the three months ended September 30, 2023 and June 30, 2023 and $1.4 million for the nine months ended September 30, 2023. There was a

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~~Conversion expenses.~~ ~~Conversion expenses were~~decrease of approximately $1.3 million ~~and approximately $0.1 million for~~between the three months ended June 30, 2023 and ~~March 31, 2023 and $1.4 million for the six months ended June 30, 2023. There was an increase of $1.1 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily driven by ~~an increase~~a decrease in legal fees and audit related fees associated to the conversion of the predecessor.

Depreciation and amortization. Depreciation and amortization costs were $3.8 million and $3.6 million for the three months ended September 30, 2023 and ~~$3.5~~June 30, 2023 and $10.9 million for the nine months ended September 30, 2023. There was an increase of approximately $0.2 million between the three months ended June 30, 2023 and ~~March 31, 2023 and $7.1 million for the six months ended June 30, 2023. There was an increase of approximately $0.1 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily due to a decrease in amortization of leases. Depreciation and amortization expenses consist primarily of expenses from our investment in Cityplace Tower. Due to the Business Change, the fair value of our real estate properties as of July 1, 2022 became the new cost basis for the Company. This change reset the depreciable basis of our properties as well as caused the recognition of new intangible lease assets.

Other Income and Expense

Interest expense. Interest expense was ~~$3.8~~$4.2 million and approximately ~~$3.4~~$3.8 million for the three months ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ approximately ~~$7.2~~$11.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023. There was an increase of approximately $0.4 million between the three months ended ~~March 31,~~June 30, 2023 and the three months ended ~~June~~September 30, 2023, which was primarily due to an increase in interest expense at Cityplace Tower attributed to an increase in interest rates and the NexBank Revolver.

Equity in ~~losses~~income (losses) of unconsolidated ventures. Equity in ~~losses~~income (losses) of unconsolidated ventures was $(0.4) million and $0.4 million for the three months ended September 30, 2023 and ~~$(0.1)~~June 30, 2023 and $0.0 million for the nine months ended September 30, 2023. There was a decrease of approximately $0.8 million between the three months ended June 30, 2023 and ~~March 31, 2023 and $0.3 million for the six months ended June 30, 2023. There was an increase of approximately $0.5 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023, which was primarily driven by an increase in net income at Marriott ~~Uptown.~~Uptown, a 255 key upscale hotel located in Dallas, Texas which is owned by the Company.

Income tax expense. The Company has recorded income tax expense (benefit) of ~~$(0.1)~~$0.3 million and ~~$0.8~~$0.3 million for the three months ended September 30, 2023 and June 30, 2023, and $1.4 million associated with the TRSs for the nine months ended September 30, 2023. There was no change between the three months ended June 30, 2023 and ~~March 31, 2023, and $0.9 million associated with the TRSs for the six months ended June 30, 2023. There was a decrease of $1.0 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, ~~2023, which was largely driven by income from the Company’s legacy CLO investments and investments in debt instruments not secured by mortgages on real property.~~2023. The tax expense is partially offset by the quarterly change in valuation allowance on a deferred tax asset of $(0.4) million for a net expense of $0.3 million for the three months ended ~~June~~September 30, 2023, that is recorded on the Consolidated Statement of Operations.

Change in unrealized ~~losses~~gains (losses). Unrealized ~~losses~~gains (losses) from our investments accounted for at fair value was ~~$9.3~~$(61.6) million and ~~$18.6~~$(9.3) million for the three months ended September 30, 2023 and June 30, 2023 and $(89.6) million for the nine months ended September 30, 2023. There was a decrease of $52.3 million between the three months ended June 30, 2023 and ~~March 31, 2023 and $28.0 million for the six months ended June 30, 2023. There was a decrease of $9.2 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The decrease is largely driven by mark-to-market losses on ~~SFR~~NSP common equity of $54.9 million and VineBrook LP interest of $20.9 million offset by mark-to-market gains on NREF OP Units of ~~$4.8 million, mark-to-market losses on NHT common stock of $4.7~~$3.7 million and ~~losses~~mark-to-market gains on ~~VB OP common units~~our legacy CLOs of ~~$4.6~~$13.4 million.

Realized gains (losses). Realized gains (losses) were $(0.9) million and ~~$1.1~~$(0.9) million for the three months ended September 30, 2023 and June 30, 2023, and $(0.7) million for the nine months ended September 30, 2023. There was a decrease of $0.0 million between the three months ended June 30, 2023 and ~~March 31, 2023, and $0.2 million for the six months ended June 30, 2023. There was a decrease of $(2.0) million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The decrease was primarily driven by realized losses on common stock of Elme Communities of ~~$0.6~~$0.8 million, Whitestone REIT of ~~$0.9~~$1.1 million, and realized losses on SFP of ~~$0.5 million.~~$1.3 million .

Non-GAAP Measurements

Net Operating Income and Same Store Net Operating Income

Net Operating Income ("NOI") is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is calculated by adjusting net income (loss) to add back (1) interest expense, (2) Advisory Fees and Administrative Fees, (3) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income (loss) computed in accordance with GAAP, (4) corporate general and administrative expenses, (5) income tax expenses, (6) conversion expenses, (7) entity level general and administrative expenses incurred at the properties that are not reflective of the continuing operations of the properties, (8) non-operating property investment revenue, (9) realized and change in

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expenses, (7) non-operating property investment revenue, (8) realized and change in unrealized gains (losses) generated from non-real estate investments, and ~~(10)~~(9) equity in income (losses) of unconsolidated equity method ventures.

The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Corporate general and administrative expenses, advisory fees and administrative fees, conversion expenses, and income tax expenses are eliminated because they do not reflect continuing operating costs of the property. Depreciation and amortization expenses are eliminated because they may not accurately represent the actual change in value in our properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Equity in income (losses) of unconsolidated equity method ventures are eliminated because they do not reflect continuing operating costs of the property. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. Also, expenses that are incurred upon acquisition of a property do not reflect continuing operating costs of the property owner. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. Non-operating property investment revenue and realized and unrealized gains (losses) from non-real estate investments are eliminated as they do not reflect continuing operating costs of the properties. We believe that eliminating these items from net income (loss) is useful because the resulting measure captures the actual ongoing revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, interest expense, Advisory Fees and Administrative Fees, conversion expenses, income tax expenses, depreciation and amortization expense, and gains and losses from the sale of operating real estate assets that are included in net income (loss) as determined under GAAP, ~~certain property general and administrative expenses that are not reflective of the continuing operations of the properties,~~ non-operating property investment revenue and realized and change in unrealized gains and losses generated from non-real estate investments, and equity in income or losses of unconsolidated equity method ventures, all of which may be material values. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.

NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “—Results of Operations” regarding the components of net income (loss) that are eliminated in the calculation of NOI.

Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

We define “Same Store NOI” as NOI for our properties that are comparable between periods and that are stabilized. Please see below for a discussion of properties included as Same Store (defined below). We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions from the beginning of the compared period to the end of the current period.

NOI and Same Store NOI for the Three Months Ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ the ~~Six~~Nine Months Ended ~~June~~September 30, 2023

The following table, reconciles our NOI for the three months ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ for the ~~six~~nine months ended ~~June~~September 30, 2023 to net ~~loss,~~income (loss), the most directly comparable GAAP financial measure (in thousands):

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For the Three Months Ended June 30 For the Three Months Ended March 31 For the Six Months Ended June 30
2023 2023 2023
Net loss $ (13,867) $ (19,521) $ (33,388)
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees 1,660 3,578 5,238
Corporate general and administrative expenses 2,252 1,496 3,748
Conversion expenses 1,281 163 1,444
Income tax expense 308 806 1,114
Depreciation and amortization 3,584 3,524 7,108
Interest expense 3,762 3,462 7,224
Property general and administrative expenses (1) — — —
Non-operating property investment revenue (8,441) (10,137) (18,578)
Realized gains (losses) from non-real estate investments 914 (1,135) (221)
Change in unrealized gains (losses) from non-real estate investments 9,332 18,640 27,972
Equity in income (losses) of unconsolidated equity method ventures (422) 76 (346)
NOI $ 363 $ 952 $ 1,315
Less Non-Same Store
Revenues $ (5,064) $ (4,382) $ (9,446)
Operating expenses 4,955 3,644 8,599
Same Store NOI $ 254 $ 214 $ 468

~~(1)Includes an adjustment to net loss to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties.~~


	For the Three Months Ended September 30		For the Three Months Ended June 30		For the Nine Months Ended September 30
	2023		2023		2023
Net loss	$	(67,958)	$	(13,867)	$	(101,346)
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees	3,469		1,660		8,707
Corporate general and administrative expenses	1,685		2,252		5,433
Conversion expenses	—		1,281		1,444
Income tax expense	330		308		1,444
Depreciation and amortization	3,820		3,584		10,928
Interest expense	4,173		3,762		11,397

Non-operating property investment revenue	(6,863)		(8,441)		(25,441)
Realized gains (losses) from non-real estate investments	939		914		718
Change in unrealized gains (losses) from non-real estate investments	61,626		9,332		89,598
Equity in income (losses) of unconsolidated equity method ventures	369		(422)		23
NOI	$	1,590	$	363	$	2,905
Less Non-Same Store
Revenues	$	(5,097)	$	(5,064)	$	(14,543)
Operating expenses	3,749		4,955		12,348

Same Store NOI	$	242	$	254	$	710

Net Operating Income for Our Same Store and Non-Same Store Properties for the Three Months Ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ the ~~Six~~Nine Months Ended ~~June~~September 30, 2023

There are two properties, White Rock Center and 5916 W Loop 289, in our same store pool for the three months ended September 30, 2023 and June 30, 2023, and ~~March 31, 2023 and~~ the ~~six~~nine months ended ~~June~~September 30, 2023 (our "Same Store" properties). Our Same Store properties exclude ~~the following one property in our Portfolio~~Cityplace Tower as of ~~June~~September 30, 2023 and ~~March 31,~~June 30, 2023, because it was not yet ~~stabilized: Cityplace Tower.~~stabilized. Non-Same Store properties include properties not yet stabilized.

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The following table reflects the revenues, property operating expenses and NOI for the three months ended ~~June~~September 30, 2023 and ~~March 31,~~June 30, 2023 for our Same Store and Non-Same Store properties (dollars in thousands):


		For the Three Months Ended June 30		For the Three Months Ended March 31							For the Three Months Ended September 30		For the Three Months Ended June 30
		2023		2023		$ Change		% Change			2023		2023		$ Change		% Change
Revenues	Revenues									Revenues
Same Store	Same Store									Same Store
Rental income	Rental income	$	374	$	348	$	27	7.8	%	Rental income	$	404	$	374	$	30	8.0	%

Same Store revenues	Same Store revenues	374		348		27		7.8	%	Same Store revenues	404		374		30		8.0	%
Non-Same Store	Non-Same Store									Non-Same Store
Rental income	Rental income	5,042		4,373		669		15.3	%	Rental income	5,000		5,042		(42)		(0.8)	%
Other income	Other income	22		9		13		N/M		Other income	97		22		75		N/M

Non-Same Store revenues	Non-Same Store revenues	5,064		4,382		682		15.6	%	Non-Same Store revenues	5,097		5,064		33		0.7	%
Total revenues	Total revenues	5,438		4,729		709		15.0	%	Total revenues	5,502		5,438		64		1.2	%

Operating expenses	Operating expenses									Operating expenses
Same Store	Same Store									Same Store
Property operating expenses	Property operating expenses	26		24		2		8.3	%	Property operating expenses	34		26		9		30.8	%
Real estate taxes and insurance	Real estate taxes and insurance	63		82		(19)		(23.2)	%	Real estate taxes and insurance	79		63		16		25.4	%
Property management fees	Property management fees	19		17		2		11.8	%	Property management fees	20		19		1		5.3	%
Property general and administrative expenses	Property general and administrative expenses	13		10		3		30.0	%	Property general and administrative expenses	30		13		17		130.8	%
Same Store operating expenses	Same Store operating expenses	121		133		(12)		(9.0)	%	Same Store operating expenses	162		121		42		34.7	%
Non-Same Store	Non-Same Store									Non-Same Store
Property operating expenses	Property operating expenses	2,493		1,483		1,010		68.1	%	Property operating expenses	1,493		2,493		(1,000)		(40.1)	%
Real estate taxes and insurance	Real estate taxes and insurance	1,277		1,275		2		0.2	%	Real estate taxes and insurance	1,281		1,277		4		0.3	%
Property management fees	Property management fees	173		153		20		13.1	%	Property management fees	171		173		(2)		(1.2)	%
Property general and administrative expenses	Property general and administrative expenses	1,012		733		279		38.1	%	Property general and administrative expenses	803		1,012		(209)		(20.7)	%
Non-Same Store operating expenses	Non-Same Store operating expenses	4,955		3,644		1,311		36.0	%	Non-Same Store operating expenses	3,749		4,955		(1,207)		(24.4)	%
Total operating expenses	Total operating expenses	5,076		3,777		1,299		34.4	%	Total operating expenses	3,911		5,076		(1,165)		(23.0)	%

NOI	NOI									NOI
Same Store	Same Store	254		214		40		18.7	%	Same Store	243		254		(13)		(5.1)	%
Non-Same Store	Non-Same Store	109		738		(629)		N/M		Non-Same Store	1,349		109		1,240		N/M
Total NOI	Total NOI	$	363	$	952	$	(589)	N/M		Total NOI	$	1,590	$	363	$	1,227	N/M

See reconciliation of net ~~loss~~income (loss) to NOI above under “NOI and Same Store NOI for the Three Months Ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ the ~~Six~~Nine Months Ended ~~June~~September 30, 2023.”

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The following table reflects the revenues, property operating expenses and NOI for the ~~six~~nine months ended ~~June~~September 30, 2023 for our Same Store and Non-Same Store properties (dollars in thousands):

For the ~~Six~~Nine Months Ended ~~June~~September 30

2023

Revenues

Same Store

Rental income

~~722~~1,126

Same Store revenues

~~722~~1,126

Non-Same Store

Rental income

~~9,415~~14,415

Other income

31128

Non-Same Store revenues

~~9,446~~14,543

Total revenues

~~10,168~~15,669

Operating expenses

Same Store

Property operating expenses

5085

Real estate taxes and insurance

~~145~~223

Property management fees

3655

Property general and administrative expenses

2353

Same Store operating expenses

~~254~~416

Non-Same Store

Property operating expenses

~~3,976~~5,468

Real estate taxes and insurance

~~2,552~~3,834

Property management fees

~~326~~498

Property general and administrative expenses

~~1,745~~2,548

Non-Same Store operating expenses

~~8,599~~12,348

Total operating expenses

~~8,853~~12,764

NOI

Same Store

~~468~~710

Non-Same Store

~~847~~2,195

Total NOI

~~1,315~~2,905

See reconciliation of net ~~loss~~income (loss) to NOI above under “NOI and Same Store NOI for the Three Months Ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and Six~~Nine Months Ended ~~June~~September 30, 2023.”

Same Store Results of Operations for the Three Months Ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ the ~~Six~~Nine Months Ended ~~June~~September 30, 2023

As of ~~June~~September 30, 2023, our Same Store properties were approximately ~~75.4%~~75.7% leased with a weighted average monthly effective occupied rent per square foot of $1.21. As of ~~March 31,~~June 30, 2023, our Same Store properties were approximately 75.4% leased with a weighted average monthly effective rent per square foot of $1.21. For our Same Store ~~properties, we~~

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properties, we recorded the following operating results for the three months ended ~~June~~September 30, 2023 as compared to the three months ended ~~March 31,~~June 30, 2023 and for the ~~six~~nine months ended ~~June~~September 30, 2023.

Revenues

Rental Income. Rental income was $404.5 thousand and $374.0 thousand for the three months ended September 30, 2023 and ~~$347.5~~June 30, 2023, and $1.1 million for the nine months ended September 30, 2023. There was an increase of approximately $30.5 thousand ~~for~~between the three months ended June 30, 2023 and ~~March 31, 2023, and $721.5 thousand for the six months ended June 30, 2023. There was an increase of approximately $26.5 thousand between the~~ three months ended ~~March 31, 2023 and three months ended June~~September 30, 2023, which was primarily related to an increase in rental revenue at White Rock Center.

Expenses

Property operating expenses. Property operating expenses were $34.5 thousand and $25.8 thousand for the three months ended September 30, 2023 and ~~$24.3~~June 30, 2023, and $84.8 thousand for the nine months ended September 30, 2023. There was an increase of approximately $8.7 thousand, or approximately 30.8%, between the three months ended June 30, 2023 and ~~March 31, 2023, and $50.1 thousand for the six months ended June 30, 2023. There was a increase of approximately $1.5 thousand, or approximately 8.3%, between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The majority of the ~~decrease~~increase is related to ~~a decrease~~an increase in repair and maintenance costs.

Real estate taxes and insurance. Real estate taxes and insurance costs were $78.5 thousand and $62.8 thousand for the three months ended September 30, 2023 and ~~$82.0~~June 30, 2023, and approximately $223.3 thousand for the nine months ended September 30, 2023. There was an increase of approximately $16.0 thousand, or approximately 25.4%, between the three months ended June 30, 2023 and ~~March 31, 2023, and approximately $144.8 thousand for the six months ended June 30, 2023. There was a decrease of approximately $19.0 thousand, or approximately 23.2%, between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The majority of the ~~decrease~~increase is related to a decrease in recoverable taxes.

Property management fees. Property management fees were $19.6 thousand and $18.5 thousand for the three months ended September 30, 2023 and ~~$17.3~~June 30, 2023, and approximately $55.3 thousand for the nine months ended September 30, 2023. There was an increase of approximately $1.0 thousand, or approximately 5.3%, between the three months ended June 30, 2023 and ~~March 31, 2023, and approximately $35.7 thousand for the six months ended June 30, 2023. There was an increase of approximately $2.0 thousand, or approximately 11.8%, between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The majority of the increase is related to an increase in gross receipts upon which property management fees are calculated.

Property general and administrative expenses. Property general and administrative expenses were $29.6 thousand and $13.5 thousand for the three months ended September 30, 2023 and ~~$9.7~~June 30, 2023, and $52.8 thousand for the nine months ended September 30, 2023. There was an increase of $17.0 thousand, or approximately 130.8% between the three months ended June 30, 2023 and ~~March 31, 2023, and $23.4 thousand for the six months ended June 30, 2023. There was an increase of $3.0 thousand, or approximately 30.0% between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The majority of the increase is related to aan increase in miscellaneous legal fees.

FFO and AFFO

We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.

Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income (loss), as defined by GAAP. FFO is defined by NAREIT as net income (loss) computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute FFO attributable to common shareholders in accordance with NAREIT’s definition.

AFFO makes certain adjustments to FFO in order to arrive at a more refined measure of the operating performance of our Portfolio. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts FFO to remove items such as equity based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and change in unrealized gains (losses). We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

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We believe that the use of FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define AFFO differently than we do.

The following table reconciles our calculations of FFO and AFFO to net ~~loss,~~income (loss), the most directly comparable GAAP financial measure, for the three months ended September 30, 2023 and June 30, 2023 and ~~March 31, 2022 and six~~nine months ended ~~June~~September 30, 2023 (in thousands, except per share amounts):


			For the Three Months Ended June 30,		For the Three Months Ended March 31,		For the Six Months Ended June 30,				For the Three Months Ended September 30,		For the Three Months Ended June 30,		For the Nine Months Ended September 30,
			2023		2023		2023				2023		2023		2023
Net loss			$(13,867)		$(19,521)		$(33,388)
Net income (loss)									Net income (loss)		$(67,958)		$(13,867)		$(101,346)
Depreciation and amortization	Depreciation and amortization		3,584		3,524		7,108		Depreciation and amortization		3,820		3,584		10,928
Realized gains (losses)	Realized gains (losses)		914		(1,135)		(221)		Realized gains (losses)		939		914		718

FFO	FFO		(9,369)		(17,132)		(26,501)		FFO		(63,199)		(9,369)		(89,700)
Distributions to preferred shareholders	Distributions to preferred shareholders		(1,155)		(1,155)		(2,310)		Distributions to preferred shareholders		(1,155)		(1,155)		(3,465)
FFO attributable to common shareholders	FFO attributable to common shareholders		(10,524)		(18,287)		(28,811)		FFO attributable to common shareholders		(64,354)		(10,524)		(93,165)

FFO per share - basic	FFO per share - basic		$	(0.29)	$	(0.49)	$	(0.78)	FFO per share - basic		$	(1.73)	$	(0.29)	$	(2.51)
FFO per share - diluted	FFO per share - diluted		$	(0.28)	$	(0.49)	$	(0.77)	FFO per share - diluted		$	(1.71)	$	(0.28)	$	(2.48)

Equity-based compensation expense	Equity-based compensation expense		436		—		436		Equity-based compensation expense		477		436		913
Amortization of deferred financing costs - long term debt	Amortization of deferred financing costs - long term debt		230		(474)		(244)		Amortization of deferred financing costs - long term debt		(197)		230		(441)
Change in unrealized losses	Change in unrealized losses		9,332		18,640		27,972		Change in unrealized losses		61,626		9,332		89,598
AFFO attributable to common shareholders	AFFO attributable to common shareholders		(526)		(121)		(647)		AFFO attributable to common shareholders		(2,448)		(526)		(3,095)

AFFO per share - basic	AFFO per share - basic		$	(0.02)	$	0.00	$	(0.02)	AFFO per share - basic		$	(0.07)	$	(0.02)	$	(0.08)
AFFO per share - diluted	AFFO per share - diluted		$	(0.02)	$	0.00	$	(0.02)	AFFO per share - diluted		$	(0.06)	$	(0.02)	$	(0.08)

Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic		37,172		37,172		$	37,172	Weighted average common shares outstanding - basic		37,187		37,172		$	37,177
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	(1)	37,755		37,172		37,465		Weighted average common shares outstanding - diluted	(1)	37,790		37,755		37,575

Dividends declared per common share	Dividends declared per common share		$	0.15	$	0.15	$	0.30	Dividends declared per common share		$	0.15	$	0.15	$	0.45

FFO Coverage - diluted	FFO Coverage - diluted	(2)	-1.85x		-3.28x		-2.56x		FFO Coverage - diluted	(2)	-11.4x		-1.85x		-5.51x

AFFO Coverage - diluted	AFFO Coverage - diluted	(2)	-0.16x		-0.02x		-0.06x		AFFO Coverage - diluted	(2)	-0.43x		-0.16x		-0.18x

Net income (loss) coverage	Net income (loss) coverage	(2)	-2.49x		-3.50x		-2.99x		Net income (loss) coverage	(2)	-12.18x		-2.49x		-6.06x

(1) The Company uses actual diluted weighted average common shares outstanding when in a dilutive position for FFO and AFFO.

(2) Indicates coverage ratio of FFO/AFFO/net income (loss) per common share (diluted) over dividends declared per common share during the period.

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The three months ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and six~~nine months ended ~~June~~September 30, 2023

FFO was $(63.2) million and $(9.4) million for the three months ended September 30, 2023 and ~~$(17.1)~~June 30, 2023 and $(89.7) million for the nine months ended September 30, 2023, which was an increase of approximately $(53.8) million between the three months ended June 30, 2023 and ~~March 31, 2023 and $(26.5) million for the six months ended June 30, 2023, which was an increase of approximately $7.8 million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The change in our FFO between the periods primarily relates to an increase in unrealized losses.

AFFO was $(2.4) million and $(0.5) million for the three months ended September 30, 2023 and ~~$(0.1)~~June 30, 2023 and $(3.1) million for the nine months ended September 30, 2023, which was a decrease of approximately $(1.9) million between the three months ended June 30, 2023 and ~~March 31, 2023 and $(0.6) million for the six months ended June 30, 2023, which was an increase of approximately $(0.4) million between~~ the three months ended ~~March 31, 2023 and the three months ended June~~September 30, 2023. The change in our AFFO between the periods primarily relates to an increase in interest expense.

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures including:

•capital expenditures to continue the ongoing development of Cityplace Tower;

•interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below);

•recurring maintenance necessary to maintain our properties;

•distributions necessary to qualify for taxation as a REIT;

•income taxes for taxable income generated by TRS entities;

•acquisition of additional properties or investments;

•advisory and administrative fees payable to our Adviser;

•general and administrative expenses;

•reimbursements to our Adviser; and

•property management fees.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and existing cash balances. As of ~~June~~September 30, 2023, we had ~~$10.6~~$3.7 million of cash available to meet our short-term liquidity requirements. As of ~~June~~September 30, 2023, we also had ~~$34.2~~$34.1 million of restricted cash held in reserve by the lender on the Cityplace debt. These reserves include escrows for property taxes and insurance, reserves for tenant improvements as well as required excess collateral.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional properties, make additional accretive investments pursuant to our investment strategy, renovations and other capital expenditures to improve our properties and scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include a revolving credit facility and future debt or equity issuances, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings, and property and non-real estate asset dispositions. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The success of our business strategy will depend, in part, on our ability to access these various capital sources.

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In addition to our ongoing renovation of Cityplace, our other properties will require periodic capital expenditures and renovation to remain competitive. We estimate an additional $190 million to $210 million of capital expenditures to complete the Cityplace renovation. Also, acquisitions, redevelopments, or expansions of our properties will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions, or redevelopment through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.

We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following ~~June~~September 30, 2023.

Cash Flows

The following table presents selected data from our consolidated statements of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2023 (in thousands):


			For the ~~Six~~Nine Months Ended ~~June~~September 30
			2023
Net cash provided by (used in) operating activities			$~~(20,849)~~(18,474)
Net cash provided by (used in) investing activities			~~18,633~~15,991
Net cash provided by (used in) used in financing activities			~~(1,642)~~(8,332)
Net decrease in cash, cash equivalents and restricted cash			~~(3,858)~~(10,815)
Cash, cash equivalents and restricted cash, beginning of period			48,649
Cash, cash equivalents and restricted cash, end of period			$~~44,791~~37,834

Cash flows from operating activities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash provided by (used in) operating activities was ~~$(20.8)~~$(18.5) million. Cash flows from operating activities was primarily driven by an income tax payment of $10.7 million.

Cash flows from investing activities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash provided by (used in) investing activities was ~~$18.6~~$16.0 million. Cash flows from investing activities was primarily driven by proceeds from the sale of several equities and senior loans.

Cash flows from financing activities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash provided by (used in) financing activities was ~~$(1.6)~~$(8.3) million. Cash flows from financing activities was primarily driven by notes payable borrowings of $20.0 million, offset by credit facility repayments of ~~$6.0~~$9.0 million, and dividends paid to common shareholders of ~~$11.2~~$16.9 million.

~~LIBOR Transition~~

LIBOR ceased publication on June 30, 2023. The Company holds debt that uses LIBOR as the reference rate as of June 30, 2023. Beginning on July 1, 2023, LIBOR rates will be replaced with SOFR as the reference rate for the remaining LIBOR debt and derivative instruments, with applicable spread adjustments. The Company does not anticipate any material changes for all in rates of debt or derivative instruments from the cessation of LIBOR and transition to SOFR as the reference rate.

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Debt

Mortgage Debt

As of ~~June~~September 30, 2023, our consolidated subsidiaries had aggregate mortgage debt outstanding to third parties of approximately ~~$143.5~~$142.9 million at a weighted average interest rate of ~~7.8%~~8.5%. See Note 7 to our unaudited consolidated financial statements for additional information.

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We intend to invest in additional real estate investments as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of common shares or other securities or investment and property dispositions.

Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common shares or other debt or equity securities, on terms that are acceptable to us or at all.

Furthermore, following the completion of our renovation and development programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.

Credit Facility

On January 8, 2021, the Company entered into the Credit Facility with Raymond James Bank, N.A. and drew the full balance. The Credit Facility, as amended, matures on November 6, 2023 and as of ~~June~~September 30, 2023, bore interest at the one-month SOFR plus 4.25%. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company paid down $3.0 million and ~~$6.0~~$9.0 million, respectively on the Credit Facility. As of ~~June~~September 30, 2023, the Credit Facility had an outstanding balance of ~~$5.0~~$2.0 million. For additional information regarding our Credit Facility, see Note 6.

Revolving Credit Facility

On May 22, 2023, the Company entered into the NexBank Revolver with NexBank , with the option for the Company to receive additional disbursements thereunder up to a maximum amount of $50.0 million. As of ~~June~~September 30, 2023,, the NexBank Revolver bears interest at one-month SOFR plus 3.50% and matures on May 20, 2024, with the option to extend the maturity by one year, twice. As of ~~June~~September 30, 2023, the NexBank Revolver had an outstanding balance of $20.0 million.

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Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of ~~June~~September 30, 2023 for the next five calendar years subsequent to ~~June~~September 30, 2023.


		Payments Due by Period (in thousands)																Payments Due by Period (in thousands)
		Total			2023		2024		2025		2026		2027		Thereafter					Total			2023		2024		2025		2026		2027		Thereafter
Property Level Debt	Property Level Debt																		Property Level Debt
Principal payments	Principal payments	$	156,737		$	143,487	$	—	$	13,250	$	—	$	—	$	—			Principal payments	$	156,146		$	—	$	142,896	$	13,250	$	—	$	—	$	—
Interest expense	Interest expense	10,223			8,468		1,096		659		—		—		—				Interest expense	7,350			3,334		3,357		659		—		—		—
Total	Total	$	166,960		$	151,955	$	1,096	$	13,909	$	—	$	—	$	—			Total	$	163,496		$	3,334	$	146,253	$	13,909	$	—	$	—	$	—

Prime Brokerage Borrowing	Prime Brokerage Borrowing																		Prime Brokerage Borrowing
Principal payments	Principal payments	$	2,118		$	—	$	—	$	—	$	—	$	—	$	2,118	(1)		Principal payments	$	1,760		$	—	$	—	$	—	$	—	$	—	$	1,760	(1)
Interest expense	Interest expense	590			118		118		118		118		118		—		(1)		Interest expense	511			102		103		102		102		102		—		(1)
Total	Total	$	2,708		$	118	$	118	$	118	$	118	$	118	$	2,118			Total	$	2,271		$	102	$	103	$	102	$	102	$	102	$	1,760

Preferred Shares	Preferred Shares																		Preferred Shares
Dividend payments	Dividend payments	N/A		(2)	$	6,930	$	9,240	$	9,240	$	9,240	$	9,240	N/A		(2)		Dividend payments	N/A		(2)	$	1,155	$	4,620	$	4,620	$	4,620	$	4,620	N/A		(2)

Credit Facility	Credit Facility																		Credit Facility
Principal payments	Principal payments	$	25,000		$	5,000	$	20,000	$	—	$	—	$	—	$	—			Principal payments	$	22,000		$	2,000	$	20,000	$	—	$	—	$	—	$	—
Interest expense	Interest expense	1,718			1,043		675		—		—		—		—				Interest expense	1,152			465		687		—		—		—		—
Total	Total	$	26,718		$	6,043	$	20,675	$	—	$	—	$	—	$	—			Total	$	23,152		$	2,465	$	20,687	$	—	$	—	$	—	$	—

Total contractual obligations and commitments	Total contractual obligations and commitments	$	196,386		$	165,046	$	31,129	$	23,267	$	9,358	$	9,358	$	2,118			Total contractual obligations and commitments	$	188,919		$	7,056	$	171,663	$	18,631	$	4,722	$	4,722	$	1,760

(1)Assumes no additional borrowings or repayments. The Prime Brokerage balance has no stated maturity date.

(2)The Series A Preferred Shares are perpetual.

Credit Facility

The Credit Facility will mature on November 6, 2023 and is subject to monthly amortization payments through the maturity date. We believe we will have adequate liquidity to pay these obligations when they come due.

Revolving Credit Facility

The NexBank Revolver will mature on May 20, 2024, with the option to extend the maturity by one year, twice, and is subject to monthly interest payments through the maturity date, with the remaining principal being due on the maturity date. We believe we will have adequate liquidity to pay these obligations when they come due.

Cityplace Debt

On May 8, 2023, we received lender consent to defer the maturity of the Cityplace debt to September 8, 2023. Also on May 8, 2023, the parties to the loan agreement agreed to convert the index upon which the interest rate is based to one-month SOFR effective as of the first interest period beginning on or after May 8, 2023. ~~The purpose of~~On September 8, the ~~deferral was to~~lender agreed

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to defer the maturity of the Cityplace debt by six months to March 8, 2024. The purpose of the deferral was to allow for continued discussions around refinancing the debt. Management recognizes that finding an alternative source of funding is necessary to repay the debt by the maturity date. Management believes that there is sufficient time before the maturity date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

Advisory Agreement

As consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser the Fees, which includes the Advisory Fee equal to 1.00% of Managed Assets and the Administrative Fee equal to 0.20% of the Company’s Managed Assets. The Advisory Agreement provides that the Fees shall be paid in cash, unless the Adviser, in its sole discretion, elects to have all or a portion of the monthly installment of the Fees paid in common shares of the Company, subject to certain restrictions. For additional information, see Notes 14 and 17 to our unaudited consolidated financial statements.

We also generally reimburse our Adviser for operating or offering expenses it incurs on our behalf or in connection with the services it performs for us. Direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees payable under the Advisory Agreement, may not exceed the Expense Cap of 1.5% of Managed Assets, calculated as of the end of each quarter, for the twelve-month period following the Company’s receipt of the Deregistration Order; provided, however, that this limitation will not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, further, in the event the Company consolidates another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses will be calculated without giving effect to such consolidation and instead such entity’s expenses will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of expenses. The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the future. The Expense Cap expired on June 30, 2023.

As of ~~June~~September 30, 2023, a total of $3.1 million in Fees to the Adviser have been waived to comply with the Expense Cap. Should the Company’s Fees and expenses subject to the Expense Cap be less than the 1.5% limit for the twelve month period subsequent to the Deregistration Date, some or all of the deferred expenses could be recouped by the Adviser up to the Expense Cap. No Advisory Fees were recouped by the Adviser as of ~~June~~September 30, 2023, and all such deferred fees were waived.

Income Taxes

We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. However, we can give no assurance that we will maintain REIT qualification. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual “REIT taxable income”, as defined by the Code, to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company has recorded a current income tax expense of ~~$0.9~~$1.4 million associated with the TRSs for the ~~six~~nine months ended ~~June~~September 30, 2023, which is largely driven by income from the Company’s legacy CLO investments and investments in debt instruments not secured by mortgages on real property. The tax expense is partially ~~driven~~increased by the quarterly change in valuation allowance on a deferred tax asset of ~~$0.3~~$1.6 million and partially offset by a return-to-provision adjustment of $1.5 million for a net expense of ~~$1.1~~$1.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023, that is recorded on the Consolidated Statement of Operations.

If we fail to qualify as a REIT in any taxable year, we could be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our shareholders would not be deductible by us in

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computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income (loss) and net cash available for distribution to stockholders. Unless we were entitled to relief under certain

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Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. As of ~~June~~September 30, 2023, we believe we are in compliance with all applicable REIT requirements.

We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50% probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. As of ~~June~~September 30, 2023 and to our knowledge, we have no examinations in progress and none are expected at this time.

We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

We had no material unrecognized tax benefit or expense, accrued interest or penalties as of ~~June~~September 30, 2023. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2021, 2020 and 2019 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income (loss).

Dividends

We intend to make regular quarterly dividend payments to holders of our common shares. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common shares out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

We will make dividend payments based on our estimate of taxable earnings per common share, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, investments held through our TRSs, book/tax differences on income derived from partnerships, and non-deductible general and administrative expenses. Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared a dividend on our common shares of $0.15 per share which was paid on ~~June 30,~~September 29, 2023 to shareholders of record on ~~June~~August 15, 2023. Our Board declared a dividend on our Series A Preferred Shares of $0.34375 per share which was paid on ~~June~~September 30, 2023 to shareholders of record on ~~June 23,~~September 25, 2023. We expect that dividends on our common shares, when, if and as declared by our Board, will be declared on a quarterly basis.

Through September 30, 2023, the Company has not generated sufficient cash flow from operations, as disclosed on the Consolidated Statement of Cash Flows, to cover the dividend authorized for payment on December 29, 2023. The purpose of paying the dividend partially in shares and partially in cash is to alleviate the cash outflow to the Company. The Company may revert to paying the dividend in cash at some point in the future when cash flow from operations supports such a cash dividend. However, there can be no assurance that cash flow from operations will be able to support a cash dividend in the future.

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Off-Balance Sheet Arrangements

As of ~~June~~September 30, 2023, we had the following off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Commitments

The Company is the guarantor on three secured loans to, and dividend payments with respect to Series D Preferred Stock of NSP, an affiliate of the Adviser, with the secured loans having an aggregate principal amount of approximately

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~~$662.1~~ $563.3 million outstanding as of ~~June~~September 30, 2023. NSP is current on all debt and dividend payments and in compliance with all debt compliance provisions. See Note 13 for additional information.

The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $77.4 million as of ~~June~~September 30, 2023. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. NHT is current on all debt payments and in compliance with all debt compliance provisions.

Critical Accounting Policies and Estimates

During the ~~six~~nine months ended ~~June~~September 30, 2023, there have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual ~~Report on Form 10-K filed with the SEC on March 31, 2023.~~Report.

Inflation

The real estate market has not been directly affected by inflation in the past several years due to increases in rents nationwide. Our lease terms are generally for a period of one year or more and rental rates reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. The Federal Reserve has recently started raising interest rates to combat inflation and restore price stability and is expected to continue to raising interest rates in response to or in anticipation of continued inflation concerns. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges.

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our shareholders. Taxable income from certain non-REIT activities are managed through one or more TRS entities and is subject to applicable federal, state, and local income and margin taxes. The Company has recorded a current income tax expense of ~~$0.9~~$1.4 million associated with the TRSs for the ~~six~~nine months ended ~~June~~September 30, 2023, which is largely driven by income from the Company’s legacy CLO investments and investments in debt investments not secured by mortgages on real property. The tax expense ~~is partially offset by~~increased primarily as a result of the quarterly change in the valuation allowance on a deferred tax asset of ~~$0.3~~$1.6 million and was partially offset by a return-to-provision adjustment of $1.5 million for a net expense of ~~$1.1~~$1.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023, that is recorded on the Consolidated Statement of Operations. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of ~~June~~September 30, 2023, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June~~September 30, 2023, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

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We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~June~~September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual ~~Report on Form 10-K filed with the SEC on March 31, 2023.~~Report.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

~~None.~~Resignation

On November 9, 2023 (the “Separation Date”), Matt Goetz resigned from his position as Senior VP-Investments and Asset Management of the Company.Mr. Goetz’s resignation is not a result of any disagreement with the Company on any matter relating to its operations, policies or practices.

In connection with his resignation from the Company and its affiliates, Mr. Goetz and the Company, the Adviser, NexPoint Advisors, L.P. (“NREA”), NexPoint Residential Trust, Inc. (“NXRT”), NexPoint Real Estate Advisors, L.P., NREF, NexPoint Real Estate Advisors VII, L.P., VineBrook, and NexPoint Real Estate Advisors V, L.P. entered into a Separation Agreement, dated November 9, 2023 (the “Separation Agreement”). Pursuant to the Separation Agreement, NREA will subsidize Mr. Goetz’s COBRA premium for a period of twelve months and 11,300 restricted share units granted to Mr. Goetz by the Company will immediately vest as of the Separation Date and will settle on the original scheduled vesting dates, subject to Mr. Goetz’s continued compliance with existing restrictive covenants. In addition, pursuant to the Separation Agreement, 11,453 restricted stock units granted to Mr. Goetz by NXRT, 72,675 restricted stock units granted to Mr. Goetz by NREF and 4,279 restricted stock units granted to Mr. Goetz by VineBrook will immediately vest as of the Separation Date and will settle on the original scheduled vesting dates, subject to Mr. Goetz’s continued compliance with existing restrictive covenants. The approximate value of the restricted share units of the Company that are vesting on the Separation Date is $113,000 and the approximate value of the aggregate restricted stock units of the Company, NXRT, NREF and VineBrook that are vesting on the Separation Date is $2 million.

The Severance Agreement additionally contains, among other things, mutual non-disparagement provisions and a mutual release of claims by Mr. Goetz and the Company.

In connection with the Separation Agreement, Mr. Goetz, the Company, NXRT, NREF and VineBrook entered into a vesting agreement pursuant to which, among other things, the award agreements between Mr. Goetz and the Company relating to his restricted share unit grants were amended to account for his separation and accelerated vesting of a portion of his outstanding restricted share unit grants pursuant to the Separation Agreement.

The foregoing summary of the Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the Separation Agreement, a copy of which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

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Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number						Description


10.1						~~Loan~~Contribution and Assignment Agreement, dated ~~May 22,~~September 1, 2023, by and between ~~NexPoint Diversified Real Estate Trust Operating Partnership, L.P.~~NHF TRS, LLC, NexAnnuity Holdings, Inc., ~~NexPoint Real Estate Capital, LLC, NexPoint Real Estate Opportunities,~~NexLS Holdco, LLC and ~~NexBank~~Specialty Financial Products Designated Activity Company (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on ~~May 25,~~September 1, 2023).

10.2						~~Guaranty Agreement, dated May 22, 2023, by the Company in favor of NexBank (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2023).~~

~~10.3~~						Form of 7.50% Convertible Notes of NexPoint SFR Operating Partnership, L.P., due June 30, 2027 (incorporated by reference to Exhibit 10.4 to VineBrook Homes Trust, Inc.’s Current Report on Form 8-K, filed with the SEC on June 14, 2023).

~~10.4~~						Second Amended and Restated Limited Partnership Agreement of NexPoint SFR Operating Partnership, L.P. dated June 30, 2023 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 30, 2023).

10.3*						Limited Consent and Twelfth Omnibus Amendment, dated September 8, 2023, by and among CP Tower Owner, LLC, CP Land Owner, LLC, CP Equity Owner, LLC, CP Equity Land Owner, LLC, the Company, NexPoint Real Estate Partners, LLC, Delphi CRE Funding LLC, ACORE Credit IV CLO Issuer 2018-1, LLC and ACORE Capital Mortgage, LP.

10.4*						Separation Agreement, dated November 9, 2023, by and among NexPoint Advisors, L.P., NXRT, NexPoint Real Estate Advisors, L.P., NREF, NexPoint Real Estate Advisors VII, L.P., the Company, the Adviser, VineBrook, and NexPoint Real Estate Advisors V, L.P.

31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~Table of Contents~~



31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1+						Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*						Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)

101.SCH*						Inline XBRL Taxonomy Extension Schema

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_______________________

*Filed herewith.

+ Furnished herewith.

6057

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NEXPOINT DIVERSIFIED REAL ESTATE TRUST

Signature

Title

Date

/s/ Jim Dondero

President and Trustee

~~August~~November 14, 2023

Jim Dondero

(Principal Executive Officer)

/s/ Brian Mitts

Chief Financial Officer, Executive VP-Finance,
Treasurer, Assistant Secretary and Trustee

~~August~~November 14, 2023

Brian Mitts

(Principal Financial Officer and Principal
Accounting Officer)

6158


Net realized and unrealized gain on investments	12,102		61,740
Total increase in net assets resulting from operations	$	68,557	$	126,834


Number of Policies	Face Value (Death Benefit)			Acquisition Cost			Premium Cost			Estimated Fair Value
Total	Range	Total		Range	Total		Range	Total		Range	Total

27	$1,500 -$15,000	$	139,951	$350 - $3,895	$	46,222	$0 - $380	$	2,628	$27 - $6,044	$	60,619


Remaining Life Expectancy (in years)	Number	Face Value		Fair Value
0 - 1	—	$	—	$	—
1 - 2	2	5,540		4,341
2 - 3	6	32,413		18,413
3 - 4	5	35,311		19,621
4 - 5	2	9,000		3,610
Thereafter	12	57,687		14,634
Total	27	$	139,951	$	60,619


Related Party	Investment	Fair Value		Change in Unrealized Gain/(Loss)			Realized Gain/(Loss)		Equity in income (loss)		Interest and Dividends			Total Income
SFR WLIF III, LLC	LLC Units	$	7,306	$	—		$	—	$	421	$	—		$	421
NexPoint Residential Trust, Inc.	Common Stock	4,075		175			—		—		75			250
NexPoint Hospitality Trust	Common Stock	16,964		(10,721)			—		—		—			(10,721)
NexPoint Hospitality Trust	Convertible Notes	22,531		1,052			—		—		319			1,371
NexPoint Storage Partners, Inc.	Common Stock	105,005		1,311			—		—		—			1,311
NexPoint Storage Partners Operating Company, LLC	LLC Units	57,220		714			—		—		—			714
NexPoint SFR Operating Partnership, L.P.	Partnership Units	49,720		(4,361)			—		—		1,203			(3,158)
NexPoint SFR Operating Partnership, L.P.	Convertible Notes	21,200		393			—		—		998			1,391
Claymore Holdings, LLC	LLC Units	—		—			—		—		—			—
Allenby, LLC	LLC Units	—		—			—		—		—			—
NexPoint Real Estate Finance Operating Partnership, L.P.	Partnership Units	75,909		(1,461)			—		—		5,843			4,382
NexPoint Real Estate Finance, Inc.	Common Stock	32,739		(630)		—	—		—		2,877		—	2,247
VineBrook Homes Operating Partnership, L.P.	Partnership Units	167,305		(3,784)		—	—		—		2,866		—	(918)
Total		$	559,974	$	(17,312)		$	—	$	421	$	14,181		$	(2,710)